The Crisis of Distribution: Theoretical Analysis from Economic Law [1 ed.] 036767646X, 9780367676469

Table of contents :
Contents
List of figures
List of tables
Preface
1 Introduction: Distribution crises and the rule of law
2 Distribution pressure and distribution differences
3 Relationship and structure of co-integrating distribution
4 Legal optimization of distribution structures
5 Distribution-oriented rule of economic law
6 Beyond the distribution crisis: Theoretical extension
7 Conclusion
Bibliography
Index

Citation preview

The Crisis of Distribution

The crisis of distribution is one of the longest standing and most complicated issues facing human society. Imbued with social, political, historic, and cultural elements, it varies significantly across different countries as a result of all these factors. As an emerging economy which transferred from a planned to a market economy, China has experienced large distribution gaps since it implemented the Reform and Opening-up Policy in the early 1980s, requiring stronger economic law to mitigate and regulate the crisis of distribution. In this two-volume set, the author analyzes distribution crises from a theoretical perspective and proposes law and policy solutions. In this first volume, he discusses the four main concepts and focus points of the crisis of distribution – distribution itself, the crises it faces, the rule of law, and development. Concentrating on the major distribution problems China faces in particular, the author proposes regulatory methods which can be used to overcome the distribution dilemma, such as tools from policy and economic law, and reiterates the significance of theory building in resolving the issues. The book should be of keen interest to researchers and students of law, economics, and political science. Shouwen Zhang is a professor at Peking University Law School. His research interests include economic law, social law, information law, and more.

China Perspectives

The China Perspectives series focuses on translating and publishing works by leading Chinese scholars, writing about both global topics and China-related themes. It covers Humanities and Social Sciences, Education, Media and Psychology, as well as many interdisciplinary themes. This is the first time any of these books have been published in English for international readers. The series aims to put forward a Chinese perspective, give insights into cutting-edge academic thinking in China, and inspire researchers globally. To submit proposals, please contact the Taylor & Francis Publisher for China Publishing Programme, Lian Sun ([email protected]). Titles in law currently include: Legal Protection of Private Equity Investors in China Practice, Challenges and Reform Chi Zhang Private Lending in China Practice, Law, and Regulation of Shadow Banking and Alternative Finance Lerong Lu Building the Rule of Law in China Procedure, Discourse and Hermeneutic Community Weidong Ji Deciphering Intellectual Property Law and Its Conflict/Reconciliation with Competition Law Kongzhong Liu The Crisis of Distribution (Set: The Crisis of Distribution and the Regulation of Economic Law) Theoretical Analysis from Economic Law Shouwen Zhang Distributive Institutions (Set: The Crisis of Distribution and the Regulation of Economic Law) The View of Economic Law Shouwen Zhang For more information, please visit https://www.routledge.com/China-Perspect ives/book-series/CPH

The Crisis of Distribution

Theoretical Analysis from Economic Law

Shouwen Zhang

This book is published with financial support from the Chinese Fund for the Humanities and Social Sciences. First published in English 2021 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2021 Shouwen Zhang Translated by Xu Yan and Zhang Dong The right of Shouwen Zhang to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. English version by permission of Peking University Press. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record has been requested for this book ISBN: 978-0-367-67646-9 (hbk) ISBN: 978-1-003-13222-6 (ebk) Typeset in Times New Roman by Deanta Global Publishing Services, Chennai, India

Contents

List of figures List of tables Preface 1 Introduction: Distribution crises and the rule of law

vi vii viii 1

2 Distribution pressure and distribution differences

14

3 Relationship and structure of co-integrating distribution

54

4 Legal optimization of distribution structures

83

5 Distribution-oriented rule of economic law

105

6 Beyond the distribution crisis: Theoretical extension

131

7 Conclusion

167

Bibliography Index

173 186

Figures

2.1 Gini Coefficient of China (2003–2011) 5.1 GDP, fiscal revenue and fiscal revenue/GDP of China (1978–2018)

39 113

Tables

2.1 Gini Coefficient of China’s national income in the past decade 5.1 China’s GDP and fiscal revenues from 1978 to 2018 (100 mm RMB)

39 112

Preface

Problems concerning distribution are global. Unbalanced distribution caused by large distribution gaps and unequal distribution has existed in varying degrees throughout different historical periods around the world. These problems have been highly intertwined with elements of society, economy, politics, law, history, and culture. They have close links to issues like economic crises such as the Great Depression in the 1930s and the global financial crisis in 2008, as well as social crises such as the Ebola outbreak and the COVID-19 pandemic. Distribution problems induce distribution risks which, when accumulated and concentrated, will trigger distribution crises. In essence, every economic crisis is a distribution crisis. Unbalanced distribution causes an unbalanced economy overall, disturbing the proper functioning of the economic and social system. Thus, distribution problems must be addressed on an ongoing basis, and distribution risks must be mitigated in a timely manner to prevent severe distribution crises. Distribution problems are not limited to economic and social problems, and they affect those of politics and law as well. Legal measures are required to efficiently solve these problems. Within the framework of the rule of law, many kinds of values should be balanced: efficiency, fairness, freedom, and order. Related rights and obligations should be reasonably distributed across multiple legal systems. The efficient enforcement of laws protects the interests of relevant entities and achieves distributive justice. Although differences exist among legal systems in different countries, these systems share common ground in their basic values, which form the common denominator for international and domestic governance in solving distribution problems. Comprehensive adjustments to numerous legal systems, especially those regarding economic law, are needed to solve distribution problems and guard against distribution risks. Economic law is mainly a concept in countries with civil law. Even so, in the common law system, economic law exists in other forms, such as fiscal law, tax law, financial law, and antitrust law. Although the names of these legal systems vary, in practice they all address distribution problems. Thus, solving distribution problems and defusing distribution crises should be regarded through the theoretical and systematic lens of economic law. Distribution crises should be effectively controlled and addressed by strengthening the regulation of economic law.

Preface ix China, the largest developing country in the world, is a transitioning country (or an “emerging economy”) that shifted from a planned economy to a market economy. Thus, China has a special distribution system: its planned economy period stressed “equalitarianism”. Its early period of reform and opening up emphasized “prioritizing efficiency with due consideration to fairness”. Afterwards, concepts such as “harmonious society” and “scientific development” were proposed, which show an evolution of the understanding of distribution. Needless to say, during its rapid economic development, China, like many other countries, had relatively large differences in the distribution ratios of factors such as labour, capital, and technology, as well as problems such as large distribution gaps and unfair distribution, which are caused by many factors. For this, a policy system and a legal framework had to be established to solve these distribution problems. Of particular necessity was a synergy among legal systems ranging from constitutional law to economic law. In fact, the theme of solving distribution problems has run through the whole process of China’s reform and opening-up. Thus, studying distribution can help shed light on the course of China’s reform and opening up and the development of the rule of law. It can also help us gain a comprehensive understanding of the problems facing China’s economy, society, rule of law, and development. The successful solution of its distribution problems will determine whether China achieves its modernization goals, which are vital for China’s future. Therefore, it is essential that we study distribution problems to figure out how to guard against and mitigate distribution risks and crises through strengthening regulations over economic law. To do this, we need to analyze distribution problems and crises from the perspective of theories on economic law, and we must address the improvement of distribution systems through the lens of economic law. These problems inspired me to write Distribution Crisis and Economic Law Regulation, which was published by Peking University Press in 2014. In 2017, the book was included in the “Translating Chinese Books Project” supported by the National Social Science Fund of China. At the same time, the book was translated into English and published at the invitation of Routledge. During the translation process, I added new ideas to the book, based on new theories and practices, and the book is presented in two volumes: The Crisis of Distribution: Theoretical Analysis from Economic Law and Distributive Institutions: The View of Economic Law. I believe readers from different backgrounds will now find it easier to grasp the ideas in these books from both theoretical and systematic perspectives. I would like to take the opportunity to extend my most sincere gratitude to the following individuals and institutions (in chronological order): First, I would like to thank the National Social Science Fund of China for including the book in the “Excellent Works in the Social Science Series” and for supporting the publishing efforts of Peking University Press. Second, I would like to thank Mrs Wang Jing, the editor at Peking University Press, for her detailed and efficient work in publishing the Chinese edition and in translating it into English. Third, I would like to thank the National Social Science Fund of China for including the book in the “Translating Chinese Books Project” and for supporting its translation. Fourth,

x

Preface

I would like to thank Routledge and its staff members for their invitation and all their hard work and commitment. Last but not least, I would like to especially thank Dr Xu Yan and Dr Zhang Dong, the translators of the book, both graduates of economic law from the Peking University Law School, now teaching at China University of Political Science and Law. They devoted considerable energy to the translation of the book and demonstrated a high level of professionalism and English proficiency, which guaranteed the quality of this translation. Finally, many thanks to all the diligent “unsung heroes” whose names are not listed here! Distribution is an extremely complicated topic. Since economic and law systems vary greatly from country to country, each country has its specific problems, which further causes variation in terms of solutions and public opinion. Nevertheless, distribution problems, which have long been a focal point in history, are still significant today, and this calls for investigation by and discussion among colleagues in relevant fields across the world. I am humbly open to criticism and opinions about this book. Shouwen Zhang Peking University Law School

1

Introduction Distribution crises and the rule of law

1.1 Background and basic propositions Since the concept of “risk society”1 was proposed by German sociologist Ulrich Beck (2004), modern society has been acknowledged as a typical risk society. Many prominent scholars have paid close attention to crises arising from various risks in history (Denney 2009).2 The global financial crisis of 2008 provides a recent example of a financial disaster. Shortly after its outbreak, it evolved into a fiscal crisis, a debt crisis, and even a recession in both the EU and the US. Not only did the devastating crisis exert significant pressure on national budgets putting countries on the verge of bankruptcy,3 but it also led to weak profitability among enterprises, the general declination of personal income, and a soaring burden on people’s livelihood. In response to these crises, governments have resorted to a bundle of economic policies acting on the fiscal, tax, financial, and industrial sectors, and corresponding legal means to reverse the dangerous economic downturn, to promote economic recovery and to restore public confidence.4 At the same time, researchers have continued to reflect on the causes of these crises and to discuss potential ex-ante and ex-post solutions. The basic consensus is that economic crises are the manifestation of economic imbalance resulting from the unequal distribution of resources, wealth, and benefits. In a word, distribution is the cause of each type of crisis. Therefore, precautionary measures including policy and legal regulations should be applied effectively to solve the issues of distribution. These measures can ensure economic security and social stability, enhance national governance capacities, and promote sound and coordinated economic and social development. The issue of distribution and associated crises are major problems that attract global attention. China is not an exception. The long-lasting high Gini coefficient, as well as the strong sense of unequal income distribution from the public, may lead to a devastating distribution crisis. As a result, we felt it necessary to apply a theoretical perspective in analyzing the causes and response mechanisms to the issue of distribution in this book – thus refining related theories, especially the theories on the adjustment of distribution structure and legal regulations. At the same time, practical purposes call for more concrete measures to overcome the

2

Introduction

distribution crises, particularly the specific ways to improve the relevant distribution system from the perspective of economic law and regulations. Despite the abundant literature, from economics, sociology, political science, and other fields related to the distribution issue and attendant crises,5 there remains the inadequacy of a systematical analysis from the perspective of economic law. Based on the background and fundamental questions above, this book focuses on the four correlated key concepts of (1) distribution, (2) crisis, (3) the rule of law, and (4) development. Taken from the existing consensus, these intertwined concepts constitute the basis of the book and form a thread which runs through all stages of the distribution crisis, including the cause, nature, potential solutions, and goals of policymakers. Furthermore, the concepts contribute to the following propositions: (1) distribution issues may lead to distribution risks which may further lead to distribution crises; (2) all types of crises contribute to or can be defined as distribution crises which require legal regulations, and finally; (3) legal regulations shall be in line with the spirit of rule of law thus facilitating economic stability and development. Based on the theoretical analysis of economic law, the book proposes that legal regulations, especially by means of economic law, shall be strengthened to resolve the distribution issues and prevent potential crises. The capacity of the rule of law in the economy should also be continuously enhanced in this process. As a result, various crises led by distribution problems could be prevented and resolved. Therefore, sound operations and coordinated development can be executed in the economy and society. According to the practice in various countries, the solution of distribution crises relies on comprehensive legal regulations. Economic law is the most important of all legal regulations. For this reason, in addition to emphasizing the aforementioned basic propositions, this book focuses on analyzing the problems, risks, and crises of distribution within theories of economic law. At the same time, the analysis further contributes to the development of economic law by revisiting related theories and seeking to adapt them from a distribution standpoint.

1.2 Subjects and definitions In general, this book analyzes the distribution crises and reassesses the solutions presented by economic law. Specifically, it is necessary to study the process of distribution with relevant risks and crises and to explore potential solutions featuring the predominant use of economic law. Thus, the book proposes that the perfection of economic law might contribute to the realization of the rule of law in the economic sector and subsequently lead to the coordinated development of economy and society. Because the objective of this book is to analyze distribution crises at the level of economic law and to discuss potential solutions to distribution issues by strengthening the regulations of economic law, the basic definition of economic law is indispensable, particularly prior to the presentation of a coherent argument. It is generally claimed that the economic law system is traceable to the end of the

Introduction 3 19th century, represented by market regulation such as the US Sherman Antitrust Law, Interstate Trade Law, and the German Anti-unfair Competition Law. It is also claimed that it was proposed, formally, by German scholars in the 1920s for the flourish of economic legislation, then promptly spread widely to many other countries. During the Great Depression of the 1930s, state intervention was pushed to the top of stimulus and bailout programmes, which led to the increasing enhancement of legislation on macro-control in the areas of fiscal policy, tax, and finance. Whether the above-outlined institutions are included in economic law depends on various countries. While in civil law countries, economic law is commonly acknowledged as an independent branch law or an independent discipline in the country’s system of legal science.6 Despite the relatively scant research under the framework of “economic law” among common law countries,7 there exist abundant legislations virtually falling into the defined scope of economic law (given by civil law jurists), thus making it possible for an international comparative study. The economic law system, generally known in Chinese academic circles, is one of seven major department laws in the national legal system – a general term referring to regulations imposed on social relations generated from macroeconomic control and marketing regulations and mainly consisting of macrocontrol law and market regulation law. The former basically includes the law of fiscal regulation, involving budget, national debt, and tax regulation etc.; financial regulation, involving the regulation in monetary market and capital market, etc. and planning regulation, involving planning, industry, investment, and price regulation, etc. The latter can be separated mainly into general law, including antitrust law, anti-unfair competition law, consumer protection law, and product quality law, etc., as well as special laws, such as banking regulation and securities regulation, etc. Research on the economic law system has basically centred on the above-mentioned institutions, have made considerable progress after “the opening of China” and the country’s reform, and have greatly promoted the level of China’s economic rule of law. Meanwhile, research on distribution problems and distribution crises have become cutting-edge issues in economic law theory, which, in turn, renders distribution theory the new pattern in the economic law system. In light of the above definition of research objects and economic law, this book focuses on the following issues. 1.2.1 Issues of distribution and distribution crises The issues of distribution which are of great concern to all countries, generally include inequality, unfair practices, disorders, and imbalance. All these problems have a profound and direct influence on society, in terms of politics, economy, and law. Distribution efficiency and equality are crucial to a country’s political stability, economic growth, social development, and the rule of law. Therefore, the issues of distribution should be solved in an effective way for the purpose of resolving issues related to national development and people’s

4

Introduction

livelihood, achieving long-lasting governance and stability, and avoiding “disorderly circulation”.8 This book builds on the concept of distribution in its broadest sense to include the distribution of income, wealth, power, and resource. Likewise, the notion of distributor is presumed to vary from countries, enterprises, and individuals to all other social parts (Kerbo 2012).9 Meanwhile, resources allocated cover public finance, corporate assets ,and personal income. All these distribution types, which are impacted by multiple economic and legal factors undertaken by inhomogeneous distribution, could lead to disparities or discrepancies (Jinjun Xue 2013).10 The coexistence of inequality and unfairness may induce distribution risks, triggering distribution crises. The “distribution crisis” is an extreme manifestation of the distribution problems exacerbated by the clear failure to address them. On the one hand, a distribution imbalance broken by unequal distribution directly impacts sustainable economic development, leading to economic crises/distribution crises. On the other hand, unfair distribution – the absence of regulation or the distortion of distribution damages allocation – impacts distribution rights and leads to legal and social inequalities, unfairness, and injustice, thereby disturbing the legitimacy and sustainability of distribution and possibly triggering distribution crises at the legal or social level (Habermas 2000).11 The general public is relatively perceptive when it comes to the distribution crisis. Signs of both the Great Depression, caused by overproduction in the 1930s (Liping Sun 2009)12 and the financial crisis in 2008 were initially observable through economic indicators. Furthermore, they were attributed to distribution imbalances and, by their very nature, are an element of the distribution crisis. To prevent or resolve all kinds of distribution crises, the choice we have is to intensify legislation, of economic law in particular, and adjust distributive activities. 1.2.2 Distribution crises and legal regulations In order to eliminate the distribution risks and the distribution crises, governments have placed an emphasis on both policy and legal measures. Policy regulations and the law could effectively allocate the distribution rights or power, affect the distribution factors and weight, thus optimizing the distribution structure and solving the distribution imbalance. At the same time, distribution imbalance, anomalies, and maldistribution could be solved by strengthening legal regulations. The aforementioned policy and legal measures play an important role in preventing distribution risks and dealing with distribution crises, and are two paths to solving distribution issues. In practice, concrete methods could be taken to prevent risks and confront the crises. Adjusting the industrial structure can facilitate the balanced development of regions and respecting and protecting the economic development right of each country can facilitate coordinated development among different countries. At the same time, narrowing the income distribution gap can prevent the unfair income allocation, and lowering the burden for enterprises can promote the development

Introduction 5 of small and medium-sized enterprises, Additionally, reducing the living cost while increasing the income of residents all constitute regulating measures too. All of this could help to facilitate the sound operation and coordinated development of the economy and society, which is directly related to the application of the two previously mentioned measures. Distribution crises are not the only concern of economists. They are also implicated with other distribution issues, especially with those relating to rights, capacities, norms, and justice, etc. Therefore, it is of great importance to prevent or resolve distribution crises through legal regulations. In practice, it has been universally recognized by most countries that legal regulation should be strengthened, especially by means of economic law. At the same time, there has been a consensus that emphasis on increasing the capacity of economic rule of law should be enhanced.13 In fact, if there exist serious inequalities, injustices, or imbalances in the distribution of public finance, personal income, wealth, and resources, economic fluctuation may break out at a macro level, thus leading to a certain type of distribution crisis, such as fiscal crisis, financial crisis, and debt crisis. Production overcapacity in the real economy and the imbalance between the real and virtual economy caused by excessive financial innovation, are both consequences of the unbalanced distribution of resources among different subjects in different fields. As a result, overall coordination is required by strengthening the legal regulation to solve the above-noted distribution issues, thus alleviating economic fluctuation. Early in 1755, the well-known historical ideologist Étienne-Gabriel Morelly (1996) proposed the argument that “economic law is a law of distribution”,14 indicating the important value of economic law in resolving distribution issues. In accordance with the oversea practice, the “New Deal” policy by Franklin D. Roosevelt was successfully implemented in the era of the Great Depression, as well as the macro-regulation measures by other countries in the 1930s. The law of macroeconomic control became law before the crisis. It is playing an important role in dealing with economic crises and counter-cyclical economies. Therefore, the role of economic law regulation should be strengthened to solve distribution issues, prevent distribution risks, and deal with distribution crises. In China, distribution pressures and the resulting crises not only opened the door of reform and opening-up, but also pushed forward the birth and development of economic law. Concerns about distribution issues have dominated the entire process of China’s reform and opening-up, connecting the evolution of the economic law system. At the same time, the development of economic law helps to solve distribution issues. It is therefore clear that we need to continuously push forward the reform and opening-up as well as strengthen the rule of economic law, in order to solve distribution problems. This is not only based on history but also standing on a foundation of reality. 1.2.3 Crisis, development, and the rule of law Development is a global theme in modern times. Crises that frequently broke out during economic development should be solved by development.15 Normal

6

Introduction

development and risk prevention have to rely on the rule of law in the economy. At the same time, the level of rule of law will also be improved by promoting the effective development of the economy and dealing with economic crises. The strong correlations among crises, development, and the rule of law are especially illuminating in understanding and studying the role of economic law and regulation in the field of distribution. The arguments can be summarized as follows: Firstly, a crisis is endogenous with economic development. On the one hand, a crisis is a consequence of development, which means that crises originate from development and worsens if they are not well dealt with. On the other hand, development is born with crises. Although a crisis should be solved by means of development, it could also facilitate development and bring about new leapfrog development. Usually, people are more concerned with the “born-with-development crisis”, as mentioned above. In spite of different understandings of financial crises and fiscal crises in academic studies, all of them fall under the umbrella of economic crises. At the same time, they are also distribution crises. A financial crisis will be related to the interest distribution among stakeholders, however strong its influence on the real economy is. In terms of the fiscal crisis, it does have significant effects on the market economy given that a fiscal crisis is also called the crisis of public economy itself. Each type of crisis noted above resulted from economic development and thus became a serious issue endangering the development. Every country has likely experienced several crises in its individual journey of economic development. For each country, only coordinated and balanced economic development could be called effective development – one that thus avoids the occurrence of a crisis. Instead, if the real economy is not coordinated with the virtual economy, the national economy cannot be balanced with the world economy, therefore, the entire equilibrium of distribution structure will be affected, which may lead to economic crises or distribution crises, or even the ineffective economic development at last. Therefore, balanced, stable and effective development is of utmost importance to a country (Boin et al. 2010).16 In addition, both crises and development are adhesive to the level of the rule of law. Effective legal regulations can facilitate the protection and mitigation of crises, promoting effective economic development. Macro-control law was established under the backdrop of the Great Depression in the 1930s. The economic law system was thus born as a whole and became an important systematic foundation for the promotion of effective economic development. As a result, economic law is not only called the “Law of Crisis Response Measure”, but also the “Law of Development Promotion”.17 From the perspective of distribution, fiscal and financial crises are directly related to the imbalanced distribution of funds/capital, income, and wealth. Often, a financial crisis may evolve into a fiscal crisis, which can, in turn, aggravate the financial crisis. Although there are inherently profound economic reasons for all kinds of distribution crises, it is undeniable that the lack of legal regulations is a key cause. Therefore, it is indispensable to strengthen the legal regulations of the

Introduction 7 economy as a way of preventing potential risks. In preventing distribution risks or dealing with distribution crises, the perfection of relevant legislation can also help to increase the general level of the rule of law. As a matter of fact, the emergence, development, and regulation of economic law is a case in point. Although the regulation of economic law should be strengthened to prevent and deal with economic crises, and promote the effective economic development, the regulation should be in line with the basic principle of the rule of law, and reflect its basic spirit. To this end, the principles of legality, fairness, and efficiency in the domain of economic law must be given particular emphasis and be reflected in the whole regulation of economic law (Shouwen Zhang 2013).18 At the same time, the development of an economic law system should also deal with its internal uniformity and difference, independence and coordination with other legal systems, and relations between economic policies and economic law, to name but a few. This will all be discussed in the relevant chapters of this book.

1.3 Basic clues and main content 1.3.1 Basic clues This book begins by looking at the distribution problems that China needs to solve and then reflects on the causes and harmful impact of these problems, as well as the exact potential solutions. Afterwards, the book makes an analysis of the existing problems in the institutional construction and practice of dealing with the distribution crises. Measures and directions on the improvement of related systems are proposed as outlined below. Finally, the distribution theory and the theories on legal regulation are summarized. To be more specific, the above-mentioned clues could be listed down as follows: 1

Problem-orientation: this book proposes two types of distribution pressures, namely, financial pressure at the national level or livelihood pressure at an individual level. The alleviation of these pressures requires the strengthened regulation of economic law. Therefore, the necessity of strengthening the regulation of economic law in the distribution field can be illustrated. Based on that, the book exemplifies the fiscal crises and distribution gap to reveal the internal relations between the two types of distribution problems and economic law regulation. 2 State coordination: no type of distribution problem can be solved without state coordination, which heavily depends on policies and law, and in particular, economic policies and economic law. In fact, economic policies and economic law are indispensable in adjusting the distribution structure that needs to be rendered effective, especially the “promoting legal norms” in economic law. When it comes to the optimization of the distribution structure, lawmakers today are no longer aligned with the same values they used to be. These discussions intend to clarify the necessity and benefits of economic law as a solution to distribution problems.

8

Introduction

3

Economic policies: applying economic policies and economic laws as the solutions of distribution issues (Piketty 2014)19 has been a basic measure in China since reform and opening-up. At the same time, the rule of economic law has focused on distribution, reflecting the orientation towards distribution. In fact, the resolution of the distribution problem has always been an important objective of the rule of economic law. Strengthening economic law regulation is of great importance in practice by solving the distribution problems, and preventing distribution crises. 4 Theoretical input: discussion on the issues of distribution, crises, and the relevant laws and regulations is helpful in strengthening theoretical research. On one hand, attention should be paid to the application of economic law theories in order to analyze the causes, expansion, and resolution of distribution problems and crises. On the other hand, emphasis should also be placed on combing the prevention of distribution risks and the resolution of distribution crises. Theoretical researches on economic law should be continuously strengthened and expanded and related legal theories should also be developed in the study of distribution problems and crises so that we can better promote economic and social development, as well as the rule of law itself.

By examining different factors, this book provides a specialized analysis of distribution problems and crises, and of the reinforcement of the rule of economic law. At the same time, the author aims to integrate the above-mentioned four aspects – distribution, crisis, rule of law, and development. 1.3.2 Basic content As noted in the introduction above, this book will explore the major issues as follows. Both countries and nations are facing distribution-related pressures – fiscal pressure at the national level and at individual livelihood level could obviously reflect distribution problems. Only effective release and mitigation could prevent higher risks and avoid distribution crises. In terms of the fiscal risks and crises brought on by fiscal pressure, especially related to unequal distribution or distribution differences, unfair distribution, and imbalanced distribution, legal regulation should be adjusted effectively. To effectively solve the distribution issues, “dual adjustments” to the distribution structure should be made through policies and law at the national level. During the optimization of distribution structure, we should not only perceive the important role of traditional laws in solving the problems in the first distribution but also in finding out the important value of modern laws, especially economic laws, in solving the redistribution problems.20 In addition, full focus should be given to the role of “promoting norms” of economic law in the process. China’s “opening” and reform have revolved around solving the distribution problems in history. It is the same as the construction of the rule of economic law. Fiscal distribution at the national level and interest distribution at the individual

Introduction 9 level are both the direct motivation of the reform and China’s “opening”, as well as an important theme in analyzing the evolution of economic policy and law system. Through the focus on distribution, the past, the present, and the future of the whole rule of economic law can be connected, thus establishing a comprehensive understanding of the system of economic law, and the regulation of economic law. The post-crisis era calls for an in-depth study on public economic crises, national competition, and risk theories, as well as the principle of change of circumstances. As we probe into the area, the adoption of a legal-based perspective may reinforce the establishment of the theory of “Development Law”.21 All our efforts to handle distribution-related issues, allocate risk, and prevent crisis serve the common purpose of maximizing economic and social development. Therefore, the law of social development should give sufficient weight to the issue of distribution, promote economic and social development, as well as the rule of law via further research in the area of economic law and other fields.

1.4 Structure and methodology of the book 1.4.1 Outline The book is divided into five chapters, in addition to an introduction and conclusion. They are each closely connected and focus on the following issues. The first chapter raises several questions. This book does not seek to address the multiple distribution issues that exist. Rather, it focuses on perceptible distribution pressures and differences that concern society as a whole, notably the fiscal distribution problems of the country and individual income distribution, especially distribution gaps and unfair distribution. The problems, which can be ultimately attributed to distribution imbalance, require regulation by economic law. This insight lays the foundation for the rest of the book. The second, third, and fourth chapters – which are based on the tools provided by economic law – analyze regulatory methods which can be used to overcome the distribution dilemma. First, it strengthens the necessity of national regulation in the polybasic and complicated distribution relations. The author proposes that policies and laws are two important tools of national regulation. Then the necessity and feasibility of “dual adjustment” in distribution structure is discussed, as well as its justification. At the same time, these chapters are dedicated to the legal optimization of the distribution structure, and they highlight the differences between traditional law and modern law – especially in their categorization and orientation. Contemplating the history of institutional changes, the book further reveals the impact of distribution on the formation and development of theories and institutions of Chinese economic law, while emphasizing the important functions of economic policies and laws in resolving distribution issues. Based on the regulatory tools mentioned above, the fifth chapter will explore the theory of distribution crisis in the field of economic law, revealing the important value of risk theory in the prevention and control of distribution crisis as well

10

Introduction

as the development of economic law theory. At the same time, it will emphasize the necessity of carving out a space for the theory of distribution within the legal science framework. The book is structured as follows: (1) distribution problems are proposed as the research target of the book; (2) in terms of various distribution problems, regulatory tools should be applied at the national level to solve the problems. Overall, policy and law are two main tools in distribution, especially economic law, which are playing a more important role in the regulation; and (3) how to apply the regulatory tools and systems to solve the distribution crisis is then discussed. The existing problems are discovered and the relevant theories are summarized. 1.4.2 Research methodology The categories of research methods have been employed in this book. Some methods, like comparative research, economic analysis, empirical research, and historical analysis, are commonly applied in social science research, while others, including “structural analysis” or “systematic analysis” and policy analysis are specific for analyzing distribution problems. The first category is a common one known by all; the second needs some explanation. “Structural analysis” and “systematic analysis” are imperative for the study of distribution issues. Given that there is a direct connection between distribution issues and the imbalance of the distribution structure, it is necessary to analyze the distribution structure and the distribution system in order to discover their existing problems and find corresponding solutions from the specific structure or the overall system. The analysis is particularly helpful for optimizing the distribution structure, improving the relevant structure of the distribution system and addressing the distribution problems in a very specific manner. In addition, the complexity of the distribution system determines its vulnerability and susceptibility of risks and crises. Some distribution problems may trigger the “butterfly effect”, thereby endangering the systematic risks. This means that the method of systematic analysis needs to be emphasized when studying distribution issues.22 Policy analysis is irreplaceable in the study of distribution. As a matter of fact, social and economic policies which initiate legislation have a direct impact on allocation and may become the solution for the problems. An analysis of the interaction between policy and legislation must be incorporated into any study like this one (Shouwen Zhang 2003).23 This book uses generalization and deduction methods to explore topics that reappear in economic law theory and practice. Distribution, a recurrent issue that runs through the historical evolution and the future development of economic law, will guide us through multiple issues that contribute to the basic understanding of economic law as well as a conviction of the effects of economic law on distribution. These are propositions, tools and methods which inspire our analysis. The book focuses on the questions raised above and demonstrates the process of

Introduction 11 reasoning. Toward the end of each part, a brief summary is provided to facilitate the understanding of fundamental propositions and projected conclusions.

Notes 1 Beck emphasized that in developed modern societies, the social production of wealth is systematically accompanied by risks. Accordingly, problems and conflicts in the scarce societies are mainly overlapped with those of production, definition, and distribution of risks arising from the development of science and technology. Beck, U. (2004). Risk Society: towards a New Modernity. Translated from German by Fuwen He. Shanghai: Yilin Press, p. 14. In fact, distribution problems have always been important causes of social risks. Therefore, distribution-related risks and crises must be taken seriously. 2 For example, Marx devoted attention to the economic crisis brought about by the capitalistic mode of production. Durkheim focused on the moral crises and the risks of social disintegration brought about by the over-emphasis on economic development. Denney, D. (2009). Risk and Society. Translated from English by Ying Ma. Beijing: Beijing Press, p. 7. 3 After the 2008 financial crisis, the most remarkable crisis had seen Iceland on the brink of bankruptcy. That was followed by the debt crises in Greece and other European countries, which have continued to cause widespread concern in the world. 4 In response to the financial crisis of 2008, China implemented numerous measures including a four-trillion-yuan investment to boost domestic demand as well as “structural tax cuts”. The United States also invested 700 billion US dollars in the form of emergency financial assistance to save the market. Several countries likewise undertook many countermeasures. 5 The importance of distribution has been emphasized by David Ricardo, John Stuart Mill, and John Bates Clark in their representative works. It is held by some that the distribution of income, wealth and rights matters than other economic issues such as scarcity and efficiency. Bronfenbrenner, M. (2009). Income Distribution Theory. Translated from English by Ming Fang. Beijing: Huaxia Press, pp. 1–2. 6 See Feikenje, W. (2010). Economic Law. Translated from German by Shiming Zhang. Beijing: China Democracy and Legal Press; Jacques, A. and Schrams, G. (1997) Economic Law. Translated from German by Yuquan. Commercial Press. 1997; Kimsawa Ryu. (2005). An Introduction to Economic Law. Translated from Japanese by Man Daren. Beijing: China Legal Publishing House, p. 27; Tansou Akinobu. Atutanizyou Zin. ed. (1985). Introduction to Modern Economic Law. Translated from Japanese by Cichang Xie. Beijing: Mass Press; Tansou Akinobu and Hiroshi Iyori. (2010). Economic Law, translated by Yoshida Keiko. Beijing: China Legal Press. etc. 7 However, there are still relevant economic law studies in Anglo-American law countries. See Schmitov. (1993). The Concept of British Economic Law. Translated from English by Zhao Xiuwen. Beijing: China Encyclopedia Press; Kindleberger, C. (1989). Economic Laws and Economic History. Cambridge: Cambridge University Press; Garvey G. and Gerald G. (1990). Economic Law and Economic Growth: Antitrust, Regulation, and the American Growth System. Westport: Greenwood Press. 8 Historical changes and the flourishing of dynasties have a direct bearing on crises in the distribution field. To resolve “the chaos cycle” issue is tantamount to resolving distribution issues. 9 Inequalities in the distribution of income and wealth are the two most important types of inequality. Some scholars believe that income usually refers to income from work or returns of investments. These include wages, investment incomes and assets such as real estate, stocks, and deposits. See Kerbo, H. (2012). Social Stratification

12 10 11

12

13

14

15

16

17

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19

20

Introduction and Inequality. 7th ed. Translated from English by Jiang Chao. Shanghai: Shanghai People’s Publishing House, p. 24. There is an ongoing debate about whether the income gap acts as inducement or obstruction of economic growth. Jinjun Xue. (2013). Growth with Inequality. Beijing: China Social Sciences Publishing House, pp. 15–16. Habermas believes that in late capitalism, there was an inflationary crisis, a fiscal deficit crisis, and a social and economic crisis of the economy. See Habermas, J. (2000) Crisis of Legitimacy. Translated from German by Weidong Cao. Shanghai: Shanghai People’s Publishing House, pp. 63–68. There is a considerable volume of literature on major economic crises associated with distribution imbalances believed to be caused by overproduction. Liping Sun. (2009). The Logic of the Financial Crisis and Its Social Consequences. Chinese Journal of Sociology, 29(2), pp. 1–15. Can the prescriptive function or the security function of law directly contribute to solving distribution problems? It is through the regulation of distribution behaviour of relevant parties and the security of the distribution of their benefits that sound and orderly distribution can be achieved. Morelly called the law of “allocating natural products or artificial products” the “distribution law” or the “economic law”. Morelly, E.G. (1996) Code of Nature. Translated from French by Jianhua Huang and Yazhou Jiang. Shanghai: Commercial Press, pp. 107–110. Some scholars have argued that the word “crisis” originated in the Greek language and was used to describe a disease that has reached a turning point. The word “crisis” was translated into English in the 14th–15th century. In China, the word “crisis” appears as a whole in the verses of Chengtian He, the astronomer of the Southern Song Dynasty, referring to troubles and risks. By the Tang Dynasty, “crisis” had gradually become a word in the common vocabulary. Pengcheng Gao. (2009) Risisology. Beijing: China Social Sciences Publishing House, p. 5. Arjen Boin argues that long-term economic growth and development is often interspersed with crises. Boin A., Hart, P., Stern E. and Sundelius, B. (2010). The Politics of Crisis Management: Public Leadership under Pressure. Translated from English by Fengping Zhao. Zhengzhou: Henan People’s Publishing House, p. 3. Economic law is a law that promotes development in which a large number of “promoting” legal norms make promoting economic and social development a reality. Therefore, economic law research needs to be strengthened by both the fields of developmental economics and development law. The principles of legality, moderation, and performance that are emphasized in the field of economic law are all very important for ensuring the rationality and legitimacy of economic laws and regulations, and for solving problems such as ineffective and unfair distribution. In certain fields, the aforementioned principles of moderation and performance are also called the principles of fairness and efficiency. Shouwen Zhang. (2013). General Theory of Economic Law. Beijing: Peking University Press, pp. 68–72. In his study of distribution problems, Thomas Piketty emphasized that the most appropriate system and policies needed for a fair social order should be established so as to achieve complete fairness and justice under the legal framework. Piketty, T. (2014). Capital in the Twenty-First Century. Translated from France by Shusong Ba. Beijing: CITIC Press, p. 32. After the Great Depression of the 1930s, the country’s economic and social functions expanded causing economic laws and social laws to become prominent in solving economic and social imbalance of modern society. Consequently, economic laws and social laws have transformed into modern laws which aim at solving problems in modern society. That notwithstanding, different views exist as to the spirit of modern laws.

Introduction 13 Wenxian Zhang. (1994). View of the Spirits of Market Economy and Contemporary Law. China Legal Science, 11(6), pp. 5–12. 21 It should be noted that as the subject of research, development has been studied in a variety of branches including development economics, development politics, and development sociology. Accordingly, there can also be a branch of development law. Shouwen Zhang. (2005). The Development Law Science and Development of Law Science. Law Science Magazine, (3), pp. 3–7. Xigen Wang and Kangmin Wang. (2009). On Regional Development Rights & the Concept of Law Update. Political Science and Law, (11), pp. 2–9. 22 Some scholars believe that the vulnerability of the system refers to its character of being easily damaged and is closely related to concepts such as instability, susceptibility, and vulnerability, and acts as a necessary condition for risks turning into crises. Ming Li. (2011). The Financial Crisis and Local Management. Beijing: Peking University Press, pp. 34–35, 42–44. 23 Shouwen Zhang. (2003). Policy Analysis on Economic Law. Studies in Law and Business, (5), pp. 94–102.

2

Distribution pressure and distribution differences

Distribution pressure and distribution differences obviously have an impact on the distribution issue and are closely related to distribution risks and distribution crises. Therefore, both of them should be solved in the legal system of distribution. Among all kinds of distribution pressure, there are mainly two types that are especially noteworthy: one is the country’s financial pressure and the other is the people’s living pressure. These two kinds of typical pressure have existed in different historical periods in various countries and, therefore, need to be resolved by effectively adjusting the distribution system. At the same time, these two types of distribution pressure derive from differences in distribution – either distribution differences between government and the people or distribution differences among individuals. Such differences affect the formation of distribution pressure, lead to greater distribution risks, influence distribution orders, and even lead to distribution crises. Allocating more distribution power to the state will reinforce the differences between governments and people, widen the distribution gap among individuals, increase distribution pressure, and vice versa. Thus, it is necessary to strengthen the legal regulations in the area of distribution, to pay particular attention to the issue of distribution pressure and distribution differences, to constantly relieve and release the distribution pressure, thus narrowing the distribution differences. With this in mind, this chapter will first discuss the legal methods adopted to reduce the above-mentioned distribution pressure and then, from a legal standpoint, it explores the regulation of financial crises from the perspective of national financial pressure and the prevention of the risk of distribution differences from the citizen’s perspective. It should be noted that this book focuses on distribution pressure and relevant financial pressures, financial risks, as well as distribution differences, unfair distribution, and related issues.

2.1. Legal relief of two kinds of distribution pressure The national economy and people’s livelihood are both of great importance to national governance. A well-performing national economy and the health of people’s livelihood is a symbol of good governance. Therefore, a country that is

Distribution pressure and differences 15 capable of ensuring the development of the national economy and people’s livelihood can avoid the “governance dilemma” and become prosperous and safe. However, throughout the history of China and foreign countries, the development of the national economy and the people’s livelihood cannot always be satisfying. The weakness of state, the huge deficit or famine, and the suffering of people exert huge pressure on the national government. It is only by effectively solving distribution problems and continuously releasing the pressure on the national economy and people’s livelihood, can governments avoid economic imbalance, social imbalance, and political upheaval. As a matter of fact, history reveals that countries have taken various measures to relieve and alleviate the tremendous pressure on national economies and people’s livelihood by, for instance, launching wars, reforming laws and developing the economy, with the hope for long-term prosperity and security. In modern ruleof-law countries, legal regulation has been an important measure in adjusting and releasing the pressure. Strengthening the rule of economic law has been widely recognized and studied because of its important role in rebalancing the public and private economies, alleviating the pressure on the national economy and people’s livelihood. As mentioned above, governments all over the world face “dual pressure”1 – the pressure placed on both the national economy and people’s livelihood led by distribution problems. The effective release and alleviation should be two major issues in practice that the countries should focus on. Efforts to alleviate “dual pressure” need to address the economic and social levels. Furthermore, the rule of economic law could be more helpful to increase the capacity of relevant stakeholders and to ensure the legitimate rights and interests as the path of legal regulation. For this reason, states should effectively apply and continuously improve economic legal systems as a way to comprehensively promote both the rule of law and good governance. Current academic research has a lot to do in terms of exploring the rule of economic law as the path to alleviate the “dual pressure”.2 In accordance with the practice among different countries, the regulation of economic law is of great importance in alleviating and releasing the two types of distribution pressure. If deeper research is conducted in this area, it will likely help to clarify the function, mission, and institutional structure of economic law, answer the foundation and motivation of economic law, as well as answer the frequent problems of “dual pressure”. Therefore, we feel it necessary to analyze the internal connection between “dual pressure” and economic law – based on the practical existence of “dual pressures” – to see its effect on the formation and development of economic law, as well as the important role of economic law in alleviating “dual pressure”. Therefore, our analysis focuses on the connection between “dual pressure” and the rights, power, and related obligations of economic law subjects. We do this by emphasizing the allocation of the rights and obligations of economic law subjects and their importance in the potential alleviation of “dual pressure”. Furthermore, the specific paths to alleviate dual pressure through economic law are discussed

16

Distribution pressure and differences

in detail, strengthening the necessity of comprehensive regulation via economic law and other department laws. Finally, the importance of the overall rule of economic law could be concluded in solving distribution pressure, distribution risks and distribution crises. 2.1.1 “Dual pressure” in China We begin with a discussion about whether such a phenomenon as “dual pressure” exists in China. In terms of people’s livelihood, problems such as high inflation, high unemployment, and high taxes increase the cost of living. As a result, people’s distribution capacity is insufficient with relatively low income levels and high living pressure. At present, China’s economy has stepped into the “new normal” and “high cost” era. People’s livelihood has become an obvious issue while achieving ways for people’s rights to existence and development are blocked. This situation has further increased the people’s living pressure, directly affecting quality of life and welfare, as well as the fulfilment of basic human rights.3 In addition, the negative influence caused by the recent global economic crisis is ongoing. The insufficient motivation resulting from economic growth and social development has also made the living pressure continuously high. In fact, not only the existing living pressure at the individual level, it is the same with countries and governments, which could be called as the public pressure of national economy or fiscal pressure – the pressure at the economic level.4 Different from people’s livelihood, the two types of pressure are respectively related to the public economy and private economy while there exists an interaction between the two. On the one hand, “living pressure” is basic (fundamentally basic; essential) and has an important influence (resounding impact) on the resolution of “public economic problems”. On the other hand, the solution to public economic problems could also strongly promote the resolution of issues related to people’s livelihood. China does have obvious living pressures, which has long been understood by all. However, when it comes to fiscal pressure, there still remain many arguments. Many people might hold the view that since the growth rate of fiscal revenue in previous years has significantly surpassed the GDP growth rate,5 and the country’s overall fiscal revenue has increased year on year, that China’s tax-sharing system is apparently asymmetric. The distribution structure of fiscal revenue remains inappropriate and is mainly controlled by the central government.6 The financial capacity of local governments, in spite of the abundant duties, is relatively not enough to support. To some extent, the lower the level of government, the heavier fiscal burdens it has. Notably, the overall fiscal pressure of the local government will not be changed because of the fiscal surplus, for the reason that the fiscal revenue in many areas is mainly from “land finance”, which is not a sustainable income model. When a local government is continuously expanding its power, financial pressure will be felt at the same time. Therefore, many local governments have to issued bonds at large scale. Sometimes the bond scale will surpass the total volume of the national fiscal revenue.7 Factors such as the government

Distribution pressure and differences 17 debts, the slow-down economic growth, the increasing input of people’s livelihood, and each kind of “structural tax reduction”,8 mean China is currently facing severe fiscal pressure. Therefore, we see that whether for the country or its people, national economy or family economy, existence or development, high pressure exists everywhere. Dual pressure not only refers to the fiscal pressure and living pressure but also the pressure in the public economy and in the private economy. Such a phenomenon should be given special attention in today’s economic and social development. Subjects under this pressure have to continuously alleviate it for existence and development. Additionally, the whole economic and social system has to continuously release the pressure to ensure general security. Therefore, the “sustained release” of “dual pressure” is a major and pressing issue that all governments have to solve. The above-mentioned “dual pressure” also exists in other countries. For example, Greece and Spain used to suffer sovereign debt crises, and Italy, Portugal and other European countries used to face severe fiscal pressure (Hui Wang 2010; Liansheng Zheng 2010).9 In order to cut down their fiscal deficit, these countries adopted measures such as austerity and reduced their national welfare. These measures not only directly affected the supply of public goods but also increased the living pressure of the people. Similarly, such fiscal pressure and people’s living pressure has increased in many prominent countries, which subsequently begins affecting each other and eventually forms the ubiquitous “dual pressure”. In reality, “dual pressure” is the symbol of an unbalanced economy and unbalanced development, which is intrinsically linked to the imbalance between public economy and private economies, thus directly affecting steady economic growth and social stability. Given that “dual pressure” exacerbates economic imbalances and vice versa, it is necessary to explore the legal path through which “dual pressures” can be relieved based on laws that can regulate economic imbalance and “dual pressure”. Therefore, further studies should focus on the internal relations between “dual pressure” and the adjustment by economic law, in order to reveal the internal mechanism of how to alleviate the “dual pressure” through the rule of economic law. 2.1.2 The internal connections between distribution pressure and economic law How can economic law become an important solution to relieve “dual pressure”? What is its internal mechanism? To answer these questions, we need to reveal the inherent relationship between “dual pressure” and economic law. In general, on the one hand, the release of “dual pressure” requires the regulation of economic law. Such demand, in reality, promotes the birth and development of economic law. On the other hand, advancements in economic law promote the release of “dual pressure” and the effective solution to the relevant economic and social problems.

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Distribution pressure and differences

As a matter of fact, financial pressure and people’s livelihood pressure, in reality, urgently need countries to take corresponding measures and create policies in the economic and social fields and make further legal responses. Therefore, the two pressures play an important role in pushing forward the economic reform and institutional evolution. Therefore, it is in the process of solving the problems brought about by the dual pressures that economic laws, as well as other fundamental branches of law, could be formulated and developed. When considering fiscal pressure, research conducted by famous economists such as Joseph Alois Schumpeter, John R. Hicks and Douglass C. North can be summarized as an important proposition in the sentence: “fiscal pressure is the direct impetus of reform” (Fan He 1998).10 It can be inferred that financial pressure is also a direct motivation for legal development, as reforms always occur alongside legislation. In addition, it can be seen that people’s living pressure is also an important and fundamental impetus for reform. The pressure on people’s livelihood is an enduring motivation and inexhaustible source for the development of various laws, including economic law. For instance, before the reform and “Opening of China”, it suffered severe financial pressure and living pressure. It was because of the living pressure that China begun the reform of the family contract responsibility system in rural areas to solve the issue of the allocation of peasants’ income. Under the fiscal pressure and living pressure, China initiated a city reform focusing on corporation reform, to solve the distribution issue of allocating income among the government, the enterprises, and the employees.11 Overall, the reform measures related to finance, tax, and planning, such as the substitution of tax payment for profit delivery and the allocation of funds replaced by loan grants. Additionally, other relevant economic law systems were playing a significant role in solving interest distribution issues, enhancing economic efficiency, and easing “dual pressure”, which directly promoted the establishment and development of the economic law system and other legal systems that are compatible with the commodity economy. At the beginning of reform and the “Opening of China”, institutional reform was centred around “decentralization and interest concession”. Numerous economic laws were stipulated, thus promoting the development of commodity economy and solving individual livelihood problems. After fifteen years of reform and opening-up, China clearly implemented the market economy system. At that time, China was facing huge financial pressure, which was reflected in the decrease of the proportion of fiscal revenue in GDP and the proportion of central fiscal revenue in the whole fiscal revenue. Reduction of the two ratios strongly influenced the realization of China’s state capacity (Shaoguang Wang & Anguang Hu 1993).12 Therefore, to ease the excessive fiscal pressure, China conducted largescale reforms on the fiscal and taxation legal systems in 1994. Within the following 20years, the fiscal and taxation legal system in China played an important role in increasing the total amount of national fiscal revenue and the “two rations” to a large extent. As a result, fiscal pressure at the state level was efficiently alleviated. Such practice indicates that fiscal pressure could promote the establishment

Distribution pressure and differences 19 and development of fiscal law systems, while the effective evolution of fiscal and taxation law systems can remarkably alter the fiscal pressure. The changes noted in the fiscal and taxation system are only microcosms (an example) of changes in the economic law system. In fact, various economic laws, including financial law, industrial law, competition law, and foreign trade law, are generated and developed in the process of addressing the “dual pressure”. Together with the traditional civil and commercial law systems, these economic laws provide an important institutional platform for alleviating the “dual pressure”. It was in this process that economic law has developed in a comprehensive way. In recent years, with the development of market economy and the distribution leaning to the government, the financial pressure of the state has been relieved, but the pressure of people’s livelihood is continuously increasing. Many important problems in the field of people’s livelihood need to be solved by expanding financial expenditure, leading to new fiscal pressure, especially at the level of local governments. As a result, the dual pressure continues. From the development path above, it is not hard to see that China was faced with “dual pressure” at the beginning of reform and “opening”. Additionally, the reform and “opening”, as well as the development of the commodity economy, contributed to the promotion of people’s livelihood and the easing of financial pressure. After the market economy was implemented, China’s fiscal revenue kept increasing year-on-year with the economic development and the fulfilment of the legal system. However, the problems of people’s livelihood have become increasingly prominent, forming a very prominent pressure on people’s livelihood and a relatively hidden financial pressure. The dual pressure still essentially exists and tends to be spiral upward. The practice need to solve the dual pressure issue above strongly pushed forward the establishment and development of economic law in China. At the same time, the effective rule of economic laws was also playing an important role in the solution of dual pressure issue thus increasing the importance of economic law in alleviating the “dual pressure”. Thus, there exist intrinsic connections between “dual pressure” and economic law. On one hand, the “dual pressure” can stimulate economic and social evolutions and promotes the rule of law development and institutional evolution. In order to solve “dual pressure”, a country needs to promote the development of economy and rule of law, thus promoting the establishment and development of economic law. On the other hand, once the economic law was stipulated, its mission, value, and function were based on the important need to alleviate the dual pressure. Economic law, as the law of development and promotion, is especially helpful in ensuring the stable development of economy and society, stimulating the potential of economic development, and enhancing the development impetus – which prevents weakness in development. Economic law, as the law of crisis solution, is especially helpful in preventing and solving each kind of distribution risk, so as to best prevent economic crises and social crises (Shouwen Zhang 2011).13

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Distribution pressure and differences

In addition, the obvious problem of people’s livelihood will directly affect the sustainability of finance, thus increasing fiscal pressure. The growing fiscal pressure may force the government to increase fiscal absorption from the people, which will further increase the pressure on people’s livelihood. Therefore, people’s living pressure is intrinsically related to fiscal pressure. As a result, dual pressure unavoidably happens in modern society. Alleviating “dual pressure” also requires effective development of economic law. At the same time, the risks brought on by distribution pressure also need to be prevented and regulated through the effective regulation of economic law. Therefore, we should not only focus on the proactive promotion of “dual pressure” to the establishment and development of economic law but also see the important role of economic law in relieving the dual pressure. Furthermore, we should reveal the internal connection between dual pressure and the distribution of rights and obligations of economic law subjects, as well as the rights and interests. As a result, economic law could be applied to solve “dual pressure” issues by distributing the rights, powers, obligations, and duties of the relevant subjects. 2.1.3 Distribution pressure and the distribution of rights and responsibilities among economic law subjects Based on the above inherent relationship between “dual pressure” and economic law, “dual pressure” is directly related to the unreasonable distribution of rights and obligations of economic law subjects, as well as the unfair distribution of rights and interests. In addition, the solution to relieving such “dual pressure” in economic law is to adjust the distribution of rights and obligations to the economic law subjects, thus influencing the right and interest structure of economic law subjects. Economic law was regulated differently in history in relation to the distribution of the right and obligation of the subjects, which was based on the different pressure placed on people’s livelihood and finance. For example, at the beginning of the reform and “opening”, China was still in an era defined by low income and low cost in general. The demands on the amount and quality of distribution were not high. It would have been relatively easy to address dual pressure at this stage. Accordingly, the “dual pressure” could be eased by simply ensuring basic demand and eliminating poverty. However, the dual pressure now faced by China has been formed in the era of high cost, since it has stepped into the group of middleincome countries. High cost in every aspect has not only pushed the GDP upward but also brought about the change in distribution structure. As a result, the distribution structure is characterized by state high tax revenue and high fiscal revenue leading to problems such as distribution gap and unfair distribution. Under the backdrop above, we see that people’s living pressure nowadays is different to what it previously was, for the reason that both of the surviving pressure, development pressure shouldered by citizens, and pressure on the government to improve people’s livelihood have changed. At the same time, the solution for people’s living pressure is closely related to financial support from the government. Although

Distribution pressure and differences 21 the total amount of fiscal revenue at different government levels is increasing, the huge input needed in solving people’s living problems will still exert high pressure on government finance. As a result, the scale of local debt is also increasing. Economic law and other relevant laws should be comprehensively applied to solve the problem of “dual pressure”. In particular, there is a need to adjust the rights and interests in economic law to effectively allocate powers, rights, obligations, and duties in order to release the “dual pressure” and to treat all economic participants in a fair way. On one hand, from the perspective of rights, “dual pressure” is related to subjects’ rights to subsistence and to development including many specific rights and powers of economic subjects (Shouwen Zhang 2012).14 For example, to release fiscal pressure, we need to focus on the distribution and exercise of fiscal power, distribute the right of fiscal revenue and of fiscal expenditure in a reasonable way, and build a more efficient fiscal and tax system under the current tax sharing system,15 in order to better maintain the survival and development of individuals. For example, to ease the pressure of people’s livelihood, the government should pay attention to the distribution and exercise of national rights such as employment rights, competition rights, management rights, and income distribution rights, given that such rights affect the realization of basic rights such as the right of subsistence and the right of development. On the other hand, from the perspective of obligations, fiscal pressure is directly related to the obligation of fiscal expenditure (or expenditure duty).16 Generally, the higher the obligation of fiscal expenditure is, the higher the fiscal expenditure amount is, and the heavier the fiscal pressure the government will shoulder. In accordance with the Balance Principle, government financial expenditure is largely restricted by its fiscal revenue. If the revenue scale is restricted but the expenditure continues to be high, the government will be faced with high fiscal pressure. In general, the more “rigid expenditure” is, the higher the resulting pressure on expenditure.17 People’s living pressure is directly related to their expenditure obligations. If the expenditure obligations are overburdened, people’s living pressure will escalate. In fact, the “three highs” – high tax, high price, and high fee – are making people’s obligations heavier than before, thus leading to higher pressure on people’s livelihood. In addition, even if the price is comparatively high, people’s pressure will still be reduced under full employment and higher income. Therefore, people’s insufficient income has been the main reason for their living pressure. In China, the high living pressure is largely due to the relatively slow growth of their incomes and the relatively declining affordability. In conclusion, there are direct connections between dual pressure and the distribution of rights and obligations in the laws, especially in economic law. To ease or release the pressure above, we must effectively allocate the rights and powers concerning fiscal revenue and fiscal expenditure, and rationally allocate the rights and powers concerning taxation and pricing – thus fully protecting taxpayers, workers, consumers, and other subjects. Besides, we must effectively apply each right of macro-regulation and market regulation, making the right and obligation

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Distribution pressure and differences

structure of each economic law subject more reasonable, effectively lowering the social cost and reducing the burden on each citizen. To do this, it is necessary to clarify the direction of economic law with a view to easing “dual pressure”. 2.1.4 The best direction for releasing distribution pressure Distribution pressure is of great importance in economic and social development and its resolution requires comprehensive adjustments on various laws. Economic law works well in alleviating distribution pressure, protecting basic human rights, and safeguarding national interests, public interests and private interests. Therefore, it is necessary to explore the specific path that eases “dual pressure” from the perspective of economic law. The separation of two rights – the national financial right and the right to private property – is the framework of economic constitution. A country must care about its national economy and people’s livelihood, to legitimately protect the national financial right and the right to private property and to safeguard equilibrium, thus alleviating the dual pressure in a better way. If the two rights above are restricted, the fiscal or living pressure will increase. Therefore, economic law aims to facilitate the balanced protection of the two rights. More specifically,economic law has different arrangements in the structure of rights and duties based on the conditions of dual pressure, which directly or indirectly influence the rights and interests of various subjects, and thus ease or eradicate all kinds of distribution pressure. In terms of fiscal pressure, an important problem must be considered in making specific regulations through economic law. That is, how to obtain fiscal income, balance revenue and expenditure, prevent the sovereign debt crisis, address the fiscal risks, and solve the financial crisis. Fiscal revenue relies on economic development. Economic development requires economic law to promote and safeguard. Therefore, all branches of economic law are directly or indirectly affecting the public economy of a country, and the national fiscal revenue, which is helpful in the alleviation of fiscal pressure. For example, adjustments of fiscal and taxation structures have a direct effect on alleviating financial pressure, especially on the distribution of fiscal revenue. In China, the establishment and practice of tax-sharing reform have continued to increase government revenue since 1994. The favourable allocation of the right to tax income, as well as territorial arrangements on non-tax revenue such as the right to derive benefits from the land, were applied in this process.18 However, fiscal pressure was further aggravated with the slowdown of economic growth in recent years, the sharp drop in land revenue, the increase in people’s livelihood pressure, and the expansion in tax-reduction fields. In order to solve the pressure, we not only need to properly modify fiscal and taxation structure, rationalize income distribution, estimate local financial revenue capacity to adjust transferring payments in practice, but also coordinate financial law, industrial law, price law, competition law, and other economic law in theory. Moreover, based on constitutional law and administrative law, governments should further transform

Distribution pressure and differences 23 their roles, reduce their fiscal expenditure in an all-round way and, as Guan Zhong argued,19 thereby achieving the goal of “making the fiscal expenditure necessary”. One the other hand, various sectorial laws of economic law, including the fiscal and tax laws, are especially helpful in protecting citizens’ property rights, competition rights, income rights, and rights of subsistence and development that are beneficial to alleviating the living pressure of individuals. For example, financial law can help to maintain the monetary value and price at a stable level, as well as the financial order and financial security, which will protect national income distribution rights or national property rights. Additionally, competition law ensures the fairness and legitimacy of competition, as well as safeguarding the order, efficiency, fairness, and security of the market. Different types of enterprises, such as small- and micro-sized enterprises, and private enterprises could thus enter into the market under fair competition. At the same time, it plays an important role in influencing people’s employment, income, and distribution, as well as their whole livelihood. In short, all kinds of specific economic law can directly create or ease people’s living pressure. In addition to above-mentioned specific paths, coordination at macro-level should be strengthened to achieve the win-win result, considering the internal tie between two kinds of dual pressure. In fact, the alleviation of people’s living pressure can help to solve the fiscal issues in a better way. As Laffer Curve has revealed,20 if we only focus on fiscal revenue and ignore the burden of the people, then dual pressure will greatly rise. Therefore, we should consider economic law as the constitution of the economy and truly implement its provisions as well as promote the comprehensive regulation of each type of economic regulation, and alleviate the dual pressure in an all-around way, to promote the good performance and the coordinated development of the economy and society. Comprehensive regulation of economic law requires a balanced implementation in light of the specific features of different branches in the economic law system. For example, both fiscal and tax law are of great importance to alleviate fiscal pressure and people’s living pressure. Therefore, the two laws should be implemented in parallel. Financial law is related to the stability of monetary value, and the exact interest rate and exchange rate, which directly affect people’s property rights. For this reason, financial law tends to alleviate the pressure on people’s livelihood. Similarly, competition law helps to regulate the monopoly and unfair competition acts, protect the rights and interests of consumers, which could effectively alleviate people’s living pressure. Comprehensive regulations among the laws above could not only be helpful to release the “dual pressure”, but also facilitate the development of economic law itself. 2.1.5 Conclusion This chapter proposes that the concept of “dual pressure” as the expression of the major important distribution issues in reality. It claims that dual pressure not only exists objectively but is also internally related to the regulation of economic law. The causes of “dual pressure” have been analyzed in terms of rights and

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obligations, and the paths of economic law proposed to alleviate the pressure have been discussed. The chapter highlighted the great importance of economic law to the alleviation of dual pressure. Based on that, it is necessary to further refine and extend the focus to the following aspects. Firstly, systematic research should be conducted into dual pressure and the legal paths for its alleviation. In fact, the public economic system and the private economic system are both important parts of the national economic system as both of them are faced with fiscal pressure and people’s living pressure. The legal system, as the important framework that influences the existence and external environment of the two economic systems, is extremely helpful in solving the pressure and issues of the economic system. Above all, the system of economic law can play a more direct and important role in alleviating the dual pressure of the economic system. Secondly, dual pressure directly affects economic growth, social development, and political stability. For modern rule-of-law countries, legal measures should be applied to alleviate dual pressure. Dual pressure, and its internal relationship with economic law regulation, not only promotes the establishment and development of economic law but also becomes the major issue under the framework of economic law regulation. The structure of the right and obligation in economic law helps to analyze the causes of “dual pressure”. At the same time, economic law can effectively allocate the rights, powers, and related obligations of the legal subjects. This is precisely the mechanism through which economic law alleviates the “dual pressures”. In addition, comprehensive regulation at a macro-level should be applied to discover the internal relationships among the specific paths, which is helpful in building the whole function of economic law system. Thirdly, the thought on dual pressure is related to the research on the value, establishment, foundation, motivation of economic law. We see that “dual pressure” has been an important impetus of the establishment and in the development of economic law, just like the transformation from pressure to motivation. The motivation of the economic law system could thus be explained. At the same time, the system construction of economic law should give a proactive reply to the major practical issue on how to alleviate the dual pressure, which is an important reflection of the responsiveness of economic law (Pusheng Liu 1999).21 Fourthly, under the prevalence of dual pressure, we must pay special attention to the tensions and interactions between these two kinds of dual pressure – especially the “two types of distribution”, namely the state financial distribution and the individual interests distribution22 – under the framework of “separation of powers and rights”, so as to improve state revenue and individual income and provide sustained economic supports to relieve dual pressure. At the same time, we should enhance the legalization of economic law so as to provide a long-term regulatory framework for the sustainable development of the country and its people, to truly establish sound interaction of “giving and taking” between the nation and its people, and to ensure the full and permanent alleviation of dual pressure.

Distribution pressure and differences 25 In conclusion, dual pressure, as one of the most vital and realistic problems prevailing in China and other countries, are important causes of distribution risks and distribution crises. Thus, this book explores the solutions to financial risks and crises resulting from financial pressure and, in the later chapters, distribution gaps and risks resulting from people’s living pressure.

2.2 Laws and regulations on financial crises As mentioned above, fiscal pressure leads to distribution risks and distribution crises. Because finance is crucial to a country’s economy, governments spare no efforts to explore how to guarantee a prosperous source of increasing revenue, prevent fiscal crises and “cyclical disorder”,23 thus achieving lasting peace and stability. However, limited by traditional research paths and a host of other reasons, law experts fail to pay sufficient attention to many legal issues related to the crises of financial distribution.24 In addition, research on such issues is relatively rare. Considering that the legal regulations are related to the emergence and settlement of fiscal distribution crises, the following chapters will focus on legal regulations of the fiscal distribution crisis. First, the chapter summarizes the consensus on the issues of financial risks and financial crises, then discusses the main legal reasons that cause financial risks and financial crises, and finally provides correspondingly legal solutions. 2.2.1  Financial    risks and financial crises in reality Since the global financial crisis broke out in 2008, some countries have been faced with huge fiscal deficits and debt crises. Debt risks or financial crises caused by fiscal deficits have received much attention in recent years. Debt crises or financial crises have broken out in Iceland, Greece, Italy, Portugal, Spain, and Cyprus, and the bond ceiling in the United States or the “fiscal cliff” have led to public panic. Given the huge impact on the national economy brought by the problems above on – social development and political stability, for example – many countries have not only taken a great number of measures in the economic field, but also strengthened relevant economic legislations, or stipulated special treaties so as to solve the deficit problems, prevent financial crises and ensure the robust development of economy and society. For example, in order to solve their long-lasting deficit problems, the United States passed the “Gram-Rutman-Hollins Act” in 1985 for the purpose of eliminating the federal budget deficit by 1991.25 Similarly, in order to resolve their fiscal deficits, members of the European Union signed the “Stability and Growth Pact”, requiring all deficits to be maintained within 3% of GDP so as to avoid high deficits which can endanger steady economic growth.26 As countries have become increasingly clear about the limited positive and huge negative effects of “deficit finance”, they have applied both economic measures and legal measures to avoid the financial crisis.

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In China’s case, since the reform and “opening” policy, the discussions on such issues as fiscal pressure, fiscal risks, and financial crises have continued. Some people think that the implementation of the reform and opening is due to a demand to ease fiscal pressure, and the implementation of a market economy, as well as the massive reform in fiscal and taxation systems, is, in fact, targeted at easing the tremendous financial pressure. Especially in recent years, in order to ease the financial crises and solve problems such as deflation and insufficient domestic demand, the government has adopted “proactive” or “expansionary” fiscal policies which have led to a sharp increase in fiscal expenditure, fiscal deficit, and treasury bonds. People will examine the scale and structure of treasury bonds to judge whether a fiscal crisis will be triggered. Usually, the indicators of debt dependence, debt-service ratio, the national debt burden ratio, and the share of fiscal deficits in GDP are used to evaluate a country’s financial conditions. Changes and trends of these indicators can clearly reflect the national fiscal performance. However, different studies formed different views such as pessimism, optimism, and neutrality, which could not come to a collective consensus.27 The fiscal risks depend largely on the volume of government debts and its capacity to pay off. If government debt is too high, the possibility of a financial crisis will be higher. For example, in the early years of the 21st century, China’s fiscal deficit remained at a high level, with hundreds of billions each year. After the global financial crisis in 2008, China’s deficit volume has been further increased28 and that is just the amount of state debts shouldered by the government. Some scholars use this data as a basis for calculating indicators such as debt dependency and the national debt burden rate. In addition to using the volume of treasury bonds to measure government debts, scholars have applied some other measures. For example, government debts are divided into four categories: explicit debts, implicit debts, direct debts, and contingent debts.29 Therefore, the treasury bond noted above is only a kind of explicit debt or direct debt. From a different perspective, the debt burden will be even heavier. For example, the debts caused by state-owned enterprises, social security, non-performing assets of banks, large amounts of arrear wage, and expenditures on public health (e.g. “SARS prevention and control” in 2003 and “bird flu prevention and control” in 2013) were mainly shouldered by the government. The “real debts” of a government are important factors that lead to financial crises. In this way, fiscal crises deserve more attention than financial crises, as financial crises are likely to be transferred into fiscal crisis, whose bill will eventually be “paid” by the government. At this point, no matter how to determine the indicators that affect fiscal risks or financial crises, or how to calculate the government’s debts, it is clear that China’s debt burden is quite heavy, which is a reflection of a potential financial crisis. This also leads to a series of legal issues that need to be studied, such as whether it is reasonable and legitimate for governments to continuously increase the fiscal deficit and issue additional treasury bonds, whether it complies with the rule of law and the spirit of constitutional government, and whether there will be

Distribution pressure and differences 27 a “fiscal illusion”and an impact on “inter-generational equity”30 etc. To answer these questions, we need to explore the legal reasons for the fiscal crisis. 2.2.2   The legal causes of fiscal risks or fiscal crises Owing to the remarkable contribution by Musgrave, master of finance and tax studies, public finance has been regarded as the “public economy”. And “public economy”, literally as an economy, also requires its management. Without precise management, losses or even bankruptcy will occur. Any carelessness in this regard has the potential to cause fiscal crises to break out. For these fiscal crises, we tend to be more concerned about the economic causes. Sometimes we even explore the causes from political and historical traditions, social and cultural roots, instead of law. Traditional legal scholars cannot easily focus on fiscal issues, as they are typically restricted by their major. However, public finance itself could reflect the modern spirit of rule-of-law. In history, without fiscal crises, fiscal decentralization, and specific institutional arrangements, there wouldn’t be a modern constitution, a real separation between parliament and government, or constitutionalism characterized by effective power separation.31 Thus, a fiscal crisis, as an extreme state of fiscal operation, and as a critical situation that a government must face, is closely linked with constitutional law and constitutionalism.32 In fact, fiscal issues are also constitutional issues because there is a direct connection between fiscal issues and the exercise of public power as well as the protection of the fundamental rights of the people. The essence of the constitution is power sharing, namely, the separation of powers between the state and the people and among state bodies. Financial power, namely the right or power to occupy or distribute social wealth, has long been the core of power sharing. Under the whole system of financial power, based on the demand to provide the public with goods, the government holds the financial power, including the right to fiscal revenue and the right to fiscal expenditure, while citizens have a basic property right. In order to effectively protect the government’s financial power and the citizens’ property rights, it is imperative to follow the principle of legality, which means that the right and power should be expressly stipulated in the constitution, as the foundation of constitutionalism. At the same time, specific provisions on the protection of fiscal and property rights should also be stipulated in relevant laws so as to effectively balance the conflict between the state fiscal power and individual property rights. All of them should be followed in the specific legislation of the relevant fiscal, tax, and civil laws. The above-mentioned legal spirit is actually a reflection of “the rule of law principle” as well as on the spirit of constitutionalism, which balances the interests of all kinds of subjects and achieves their sound interactions through effective and legitimate power sharing. Failure to carry out this agenda effectively not only damages national property rights but also jeopardizes fiscal power – even leading to financial crises. In reality, the specific legal causes of fiscal risks or fiscal crises may be divided into the following aspects.

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2.2.2.1 The ineffectiveness of budget law The Constitution of the People’s Republic of China was formed and developed with a very nuanced background, and weakness in the economy. Therefore, stipulations about the budget are limited.33 Such limitation should be made up by the budget law. However, China’s budget law system is similarly vague and in poor operability. As a result, the management of most fiscal revenue activities is outside of the control of the budget law, thus seriously affecting the authority of the budget law. In short, the budget law has failed to work for a long time and it requires reconstruction or restructuring.34 Originally, as the constitutions of many countries stipulate,35 a country’s fiscal revenue and expenditure should be counted in the budget according to jurisprudence, and this should be reflected in specific budget laws. However, in China, this principle has never materialized. As a result, there are the so-called “extrabudgetary funds”, in addition to the “budget funds”, and even illegal “funds outside the system” in addition to the “extra-budgetary funds”. This causes distribution disorder and illegality and also leads to an ever-expanding deficit, and fiscal and financial risks and crises. In addition, the financial balance of payments is the basic principle of budget laws in all countries,36 as stipulated within many constitutions around the world. In theory, if such balance could be achieved, there would be neither a large number of deficits nor fiscal crises. However, in practice, there are circumstances that a country’s budget law lacks enforceability and is even ignored in reality. As a result, the principle of “balance of payment” is difficult to implement, which has been a key reason for fiscal crises. On the issue of balance of payments, the opinions of economists are as changeable as the economic life, which clashes with the stability of the law. During the period of Keynesianism, many economists promoted “deficit economies” by supporting the deficit fiscal policy.37 Even when advocating fiscal balance, they often emphasized “cyclical balance”, rather than annual balance.38 If these claims were adopted and then applied into specific budgetary activities, large deficits would occur that would trigger the financial crises. Divergence from the principle of budgetary balance will lead to high deficits and potential financial crises. This is also an important reason why many countries at present are in the situation of “deficit expansion”. As a result, many countries have abandoned the mere “deficit fiscal policy” and begun to adopt the principle of balance of payments. Meanwhile, reducing the deficit and preventing fiscal risks and fiscal crises, have become the new targets. In addition, deficit scale is influenced by economic and social changes, legal adjustments,39 and changes in a cyclical pattern which, first, increases and then decreases like an inverted U curve. As this phenomenon still needs to be tested in the future, this book has named the trend as the “Inverted U Hypothesis”.40 Similar to the “Inverted-U Hypothesis” proposed by the famous economist Kuznets on income distribution (Piketty 2015),41 our Inverted U Hypothesis shows that when deficit reaches a certain scale, it drops because of the pressure to solve

Distribution pressure and differences 29 financial crises or the pressure of legitimacy, even for the collapse of the economy, change of government, etc. This means the increasing deficit scale also has its limit. The “inverted U” curve, similar to the sinusoidal or wavy line (either broken or not), remains generally balanced. This means that, in reality, it is a case of the balance of payments. It is only by achieving this balance that the financial crisis can be resolved. Of course, managing the public economy of a country is very complicated. In practice, the balanced budget is hardly achieved. The budget law also stipulates the circumstances in which the deficit is allowed with strict restrictions. However, the implementation of budget law is not strict enough. The expansion of deficits occurs when additional expenditures are permitted. So, the questions are: why is the additional expenditure permitted? Why does the expenditure generally exceed the revenue? Why does the government always fail to make ends meet? Why does it take one year to evaluate the “one-year budget”? Do all kinds of government investment and spending (especially on economic construction) benefit the taxpayers and provide public goods for the community? If not, is the additional expenditure and the fiscal deficit lawful? All these issues are worth studying. In fact, if the government cannot implement the budget law seriously and just focuses on the short-term policy regulation, instead of long-term consideration for the sake of stable expectation, financial risk or financial crisis is unavoidable. It is by fully implementing the budget law, and truly following the principle of “statutory budget”, that excessive expenditures, fiscal deficits, and crises can be avoided and the balance of payments can become reality. As for China, in the past, the above-mentioned “extra-budgetary funds” and “funds outside the system” have generally shown their divergence of the budget law, thus increasing the possibility of fiscal risks and crises. Besides, there are other problems that violate the principle of fiscal balance including the non-legalization of the tax-sharing system,42 the loose exercise of treasury receipt and payment regulations,43 the loss caused by the arbitrary collection of budget revenues,44 and the outof-control or even illegal expenses manipulated by the chief executives. All of these factors lead to the budget law failing to work and leading to fiscal crises. Previous research focused more on how the distribution of powers and rights would ultimately influence the interests and benefits in economy. However, from the point of public law, we should also consider how to limit the power of distribution in fiscal budget, fiscal revenue and expenditures. In the era when we are strengthening the “market economy”, “the tax state”, and “the budget state” (Shaoguang Wang 2007),45 it can be helpful for the government to change their role and supply public goods through tax revenue. Therefore, adjustments of power distribution, as well as other institutional arrangements, are of great significance in solving deficit issues and financial crises, to name but a few. 2.2.2.2 Vacancy of treasury bond law The financial crises, directly shown as a large number of explicit or implicit deficits, are usually compensated by issuing treasury bonds, issuing additional

30

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currency, increasing tax revenue, etc. Among these, the least harmful and the most common one is to issue treasury bonds, which is guaranteed by the national credit. Moreover, they are, in nature, “public”, which means they should be regulated by public law. Thus, their amount, structure, interest rate, and repayment must strictly comply with the law, or namely, the issuance of treasury bonds must be ruled by the law. However, the current legislation regarding treasury bonds in China is still rather insufficient. Even though it has been included in the legislative planning several times, all endeavours have ended up with failures. Thus, there is still no specific “Treasury Bond Law” that can provide a systematicstipulation for relevant basic issues. At present, except for some limited and simple administrative regulations46 on administrative treasury bills, abundant regulations related to treasury bonds are issued through the documents separately or jointly, by the Ministry of Finance, the State Taxation Administration, the People’s Bank Of China, the National Development and Reform Commission, the Securities Regulatory Commission, and other agencies. The overall treasury bond law is still in the blank condition. In spite of the sporadic provisions on treasury bonds in the budget law and other laws,47 the unsystematic and uncoordinated provisions increase the possibility of fiscal risks and crises. Furthermore, only some basic regulations are reflected in the budget law. For example, with regard to the legal basis of issuing government bonds, the budget law before 2015 enhanced the central government’s public budget, and local budgets at all levels should be prepared in accordance with the principle of balance of payments. At the same time, the deficit was not listed in the public budget of the central government and local governments. This means, in theory at least, that there are no deficits and thus no need to compensate for the deficit by issuing treasury bonds. Accordingly, issues such as deficit, treasury bonds, and fiscal crises shouldn’t happen. Otherwise, it is easy to know that the rules of the budget law weren’t implemented as planned. In fact, deficits exist not only in central government but in many local governments too, and on a huge scale. For example, according to the statistics of the National Audit Office, although local governments at all levels had no power to issue government bonds before 2015 based on the budget law, the debts of local government had come to more than RMB10 trillion.48 Making up for these fiscal deficits has been the priority of governments at all levels, and is also the key to easing the fiscal crises of different levels of governments. According to the budget law before 2015, domestic and foreign debts can only be permitted for funding the gap caused by the construction necessary for the central government. It is only when the central government lacks the money for necessary construction can debts at home and abroad be permitted. Even more so, the amount and the structure of debts need to be reasonable.49 Regulations on the exact reasonable scale and structure are nonexistent, which leads to different views by scholars on issues like debt dependence, etc. To solve these important issues – which may otherwise lead to financial crises – we should not only focus on the debates around theory among scholars but also enact and implement the

Distribution pressure and differences 31 “treasury bond law” which will combine the experiences of other countries with China’s reality in relation to economic law. In theory, the amount and structure of treasury bonds should be regulated by the treasury bond law. Without a specialized treasury bond law at present, the congresses of the people at all levels and their standing committees should, in accordance with the budget law, strengthen budget supervision to prevent government departments from increasing their borrowing through non-standard “budget adjustments”, exercise the power of change or withdrawal, and hold those who violate the law accountable.50 However, without a specialized law for treasury bonds to fully and clearly stipulate their amount and structure, supervision by the power organs lacks direct legal basis. This also encourages the over the issuance of treasury bonds, which, to a certain extent, will inevitably increase the possibility of fiscal risks or fiscal crises. 2.2.2.3 The insufficient enforceability of the tax law Generally speaking, among the various financial crises related to laws, the number of tax laws and regulations is the largest. On the one hand, the principle of statutory taxation has led to “one tax, one law” which means all types of taxes, in practice, have a legal basis. On the other hand, the principle of legal reservation and parliamentary reservation that follow the principle of statutory taxation, are not fully implemented, so a large amount of tax legislation belongs to regulations, instead of the “law”, and the level of tax legislation is relatively low. As a result, non-compliance in law enforcement is prominent, and the implementation of tax doesn’t strictly follow the existing laws and regulations. Therefore, the tax law’s enforceability is obviously insufficient. The insufficient enforceability of tax law is mainly shown as “over-levying” (such as various “over-tax”) and “inadequate-levying” including waiving by the government, the levying power out of private relationships (such as the so-called “Renqing tax”), or failing to levy in practice. The “underground economy” and the prevalence of tax evasion inevitably lead to the massive loss of state revenue, thereby reducing a country’s fiscal expenditure capacity and increasing the possibility of a financial crisis. The weak enforceability of China’s tax law is mainly derived from the excessive provisions of tax preference.51 A large number of preferential tax treatments and a larger number of tax concessions in practice that exceed the requirements of the tax law have made huge “expenditures of tax” on a large scale, thereby reducing the fiscal revenue, increasing the fiscal deficit, and leading to the possibility of financial crises. On top of this, the weak enforcement of China’s tax law is also connected with the illegal changes of the statutory tax elements made by some state organs. For example, statutory tax rates, tax breaks, and even taxpayers may face adjustments without legislative procedures, which would negatively affect the stable fiscal revenue.

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In a word, some of the most important reasons that account for the weak enforceability of China’s tax law include the low tax legislative level, the violations of “legislation law”, and the principle of statutory tax, as well as the illegal exercise of relevant provisions. Therefore, it is of great importance to follow the principle of “statutory tax revenue”, raise the overall legislative level, and exercise relevant powers legally, so as to prevent fiscal risks. The legal reasons for potential fiscal crises are actually manifold, but the above-mentioned discussion focuses on the budget, treasury bonds, and taxation that are closely related to the financial crises. It is not difficult to find that issues pertaining to legislation and enforcement in these fields can directly affect the state’s fiscal conditions. If these problems cannot be resolved properly, there would be financial crises even with a booming economy. In general, economic development is only a basis for resolving financial crises, but it can’t necessarily and automatically eliminate the financial crisis. In fact, in recent years, even with a roaring economic growth, China has also faced serious deficits and an increasing amount and scale of government bonds. Therefore, to solve financial crises, we should conduct research not only from the perspective of economics but also from the perspective of legal studies. To reach this goal, we will further explore its causes on a constitutional level in addition to the above-mentioned specific legal reasons for the financial crises. 2.2.3 Further exploration of legal causes: the absence of relevant constitutional provisions The absence of relevant constitutional provisions has been implicitly involved in the exploration of legal and fiscal causes. After all, fiscal power and property rights are vital to both the country itself and its people. For the country, “no finance, no policy”; for the people, “no property, no heart”. Therefore, fiscal power and property rights, as the basic power of the state and the basic rights of the people, should be clearly defined and protected in the constitution. Only in this way can the state effectively provide public goods for society and guarantee people’s rights of substance and development. This is also an important institutional arrangement for safeguarding the country’s prosperity and progress (North 1999).52 Budget law, treasury bond law, and tax law above all aim to safeguard the country’s fiscal power based on its constitution. The constitution includes not only the division of fiscal power and property rights between the nation and its citizens but also the division of fiscal powers among the relevant state organs. In fact, there are multiple and detailed provisions concerning the budget, taxation, government bonds, and so forth, in the constitutions of many countries. These are constitutional arrangements of fiscal power. Such provisions not only provide important constitutional bases for enacting the relevant laws or regulations in the future, but they are also, to some extent, enforceable. However, the relevant provisions in the Constitution of PRC are relatively vague. The direct provisions with regard to the “budget” are insufficient. The

Distribution pressure and differences 33 provisions mainly clarify the budget approval power of the legislatures at all levels, as well as the budget-drafting power owned by the state administrative organs. With respect to taxation, only article 56 directly stipulates “tax revenue”. That is, “Citizens of the People’s Republic of China have the obligation to pay taxes in accordance with the law”. For government bonds, there is even no stipulation at all. It is obvious that there is a deficiency of provisions on the financial budget, taxation, and treasury bonds in the constitution, which not only limits relevant legislation but also creates a dangerous legal vacuum. In conclusion, the causes of fiscal crises include the deficiency of specific provisions including budget law, tax law, and bond law, and the absence of relevant provisions in the constitution. As a matter of fact, the lack of specific laws is partly rooted in the absence of relevant provisions in the constitution. The essence of the constitution lies in the “decentralization” and “limitation” of powers including fiscal power so as to settle disputes – this is the same case as fiscal power. If the fiscal power cannot be effectively distributed, financial order will be disordered, leading to fiscal crises. Despite the stipulation on power sharing in China’s constitution, the possibility of financial crises still exists because they are neither comprehensive nor concrete. Thus, we should figure out solutions according to different situations. Deficiencies in the constitution need to be compensated by legislation. For those stipulated in the constitution, they should be effectively implemented in order to avoid and dissolve the fiscal risks and fiscal crises. Accordingly, the existing problems and their solution will be briefly discussed as follows. 2.2.3.1 The deficiency of the relevant constitutional provisions and potential solutions The Constitution of PRC has its weaknesses. First, the provisions are still insufficient in the constitution, which has been restricted by many historic factors. In recent years, China has approved several constitutional amendments to make improvements. Despite this, in terms of the distribution of fiscal power, further amendments are needed. Constitutional revisions should reflect the character of an era, particularly the common sense of decentralization on an international level, which is a reflection of the basic institutional civilization. In the era of globalization, constitutions tend to be more economic, and China’s constitution still has far to go in this aspect.53 The provisions about public economy stipulated in the constitution are directly related to basic civil rights, thus in connection with other constitutional provisions. For instance, the protection of public powers and private rights has been an important issue. In fact, a constitution is also built on the dual structure of public rights and private rights (Shouwen Zhang 2001),54 which is also the foundation for cultivating the spirit of the rule of law or constitutionalism. Under the framework of “dual structure”, fiscal power, as an important part of state sovereignty, is typically a public power whose establishment and exercise must obey a series of statutory principles, including the statutory budget, statutory

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government bonds, and statutory taxes. Accordingly, these principles should be reflected in the process of constitutional revision. They are not only the key principles for protecting the state fiscal power but also a shield for citizens’ property rights. Therefore, the principle of “parliamentary reservation” and the principle of “legal reservation” must be effectively set up and implemented so as to effectively meet the requirements of the Law on Legislation of the People’s Republic of China (Shouwen Zhang 2003).55 The effective allocation of fiscal power requires specialized sectors of law enforcement and legislature. For instance, each type of budget power – such as the approval power, supervision power, and drafting power, the enforcement power – should be effectively distributed between the parliament and the government. In terms of taxation, the legislative power, imposing power, and access privilege should be clearly distributed between the legislative organs and law enforcement organs. Therefore, only by stipulating abundant provisions related to public finance, clarifying the power distribution among budget, taxation, and treasury bonds, can we make our constitution comprehensive. 2.2.3.2 The weak enforcement of the relevant constitutional provisions and the corresponding adjustments The weakness of the constitution not only refers to the absence but also the weak enforcement of the current stipulations. Weak enforcement has led to issues such as deficits, debts, or fiscal crises. For example, the constitution stipulates that people’s congresses at all levels have the power to supervise all kinds of state organs and that people’s congresses, at all levels, should be accountable to the people and supervised by the people so as to embody the basic spirit of “all power belongs to the people”.56 Of course, people’s congresses at all levels have made great efforts to exercise the supervision power in accordance with the constitution. However, in practice, the supervision of public finance is still inadequate. For example, there is already a special financial commission and budget committee in the NPC, but the supervision of budget expenditures and other expenses cannot be conducted effectively. As a result, the supervision power cannot be effectively exercised, budget expenditure lacks effective supervision and restriction, and the deficit scale continues to increase. Whether the supervision power belongs to the National People’s Congress or the people, it is empowered by the constitution. One of the important reasons why such power cannot be sufficiently enforced is that the Constitution of PRC does not have its stipulation and protection to safeguard the citizen’s “right to know”. In fact, the complete citizen’s right to know is the precondition needed to exercise supervision power. The right to know is an important information right. If people or their representatives lack the necessary understanding of the exact revenue and expenditure of finance, effective supervision will be difficult to implement. Therefore, we must thoroughly implement the related power or right. To fulfil the supervision power of People’s Congress, reforms should be made to the budget drafting and approval system. The supervision of fiscal expenditure,

Distribution pressure and differences 35 such as government procurement and transfer payment, should be strengthened. High waste led by “jerry-built projects” and “three public consumptions” should be prevented. Only by the continuous supervision, effective protection of taxpayers’ rights, and solving the continuously high expenditure, deficit, and debt scale, can the government strengthen its capacity over rule-of-law, thus preventing a fiscal crisis. To fulfil the supervision power of the people, the citizen’s right to know should be truly given to the people. The citizen’s right to know itself is an important right of the taxpayers. It is also a citizen’s right in accordance with the constitution. Therefore, taxpayers should have the right to know the basis of taxation and where the money goes, and whether the government has provided the corresponding goods. Taxpayers have the right to know about the debts of their government, whether there is the potential for a fiscal crisis, etc. Based on that, evaluation of the budget, taxation, and debts of the government could be conducted so that the supervision power in the constitution could be fulfilled. If the people cannot fully exercise their right to know and understand the usage of taxes, they may have a reasonable doubt on the legality of the taxation, expenditure, and debts of the government. Such acts will further deteriorate the fiscal conditions, even form a vicious cycle and, finally, trigger fiscal crises. The issues regarding budget law and the law of treasury bond that lead to fiscal risk or fiscal crises can also be attributed to weaknesses in the constitution, which is the institutional reason for these problems. Therefore, we should expand on the short sections in the constitution and make the current provisions fully clear, so as to better solve fiscal crises with the framework of the rule-of-law. 2.2.4 Fiscal decentralization should be implemented through the specific legislations Effective decentralization should be made in specific fiscal legislation to restrict power, thus solving fiscal risks and fiscal crises. As a result, Nash equilibrium could be achieved among different subjects and disputes could thus be alleviated. Fiscal decentralization is of great importance for all countries. Fiscal decentralization is required to clarify the scope and function of the government. Specifically, a clear line should be drawn between country and people, and government and market, in order to give basic rights back to the citizens. Issues that citizens can deal with should be solved by citizens, not by governments. In fact, the core function of a government is still the supply of public goods. If the government could truly transfer its function –from an “omnipotent government” to a “limited government” to shoulder the limited responsibility – then the fiscal expenditure will significantly drop.57 Many deficits or debt issues may not happen if this were the case. Therefore, in order to truly avoid the negative impact illustrated by Wagner’s Law58 and Parkinson’s Law, it is necessary to separate powers through the constitution. Apart from decentralization under the above-mentioned “dual structure”, horizontal and vertical fiscal decentralization within the government is also required.

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Horizontal decentralization mainly involves the division of fiscal power among state organs at the same level, especially the legislative power over finance and taxation, the power of budget examination and approval, and the rights of bond issuance. Vertical decentralization mainly involves the division of fiscal power among different levels of state departments, especially power over tax revenue. In fact, one of the key points concerning the relationship between the central government and the local government is the vertical division of fiscal power. It is only by adequately defining this division in the fiscal and taxation system, in accordance with the law, and limiting the exercise of powers, can the issues concerning financial revenue and expenditure be better resolved. For example, it is necessary to allocate certain tax powers to local governments based on their needs and interests, especially proper legislative power and tax revenue power. In this way, local governments can be fully motivated to address their fiscal deficits and achieve better development. 2.2.5 Conclusion Fiscal deficits, public debts, and the resulting fiscal risks and crises have always been a focus of all countries. It is necessary for China to analyze its advantages and disadvantages from all angles and to take precautions. At present, although there are still controversies surrounding the specific numbers of deficit and debt (which can lead to fiscal crises), it is clear that expanding deficits and debts will undoubtedly increase the possibility of financial crisis. Based on this, it is essential to further explore the economic, social, legal, and other reasons that may trigger financial crises and put forward countermeasures. From a legal standpoint, the reasons that may trigger fiscal crises include not only the specific causes in the fiscal and taxation systems, such as the abstract budget law, the absence of a treasury bond law, and the weak enforceability of the tax law but also the deeprooted causes in the constitution – including its deficiencies and the weak exercise of provisions. An effective solution to avoid fiscal risk and crisis is the restriction of power after decentralization. Comprehensive considerations should be made on the interests of different parties so that each party can fully exercise their power or right.59 Binding institutions could be designed to alleviate the disagreements. Here, we not only see the power sharing but also the power restriction – not only freedom but also binding systems – which fully reflect the spirit of democracy and the rule of law, as well as the pursuit for legitimacy and legality. In addition, legislation and enforcement should be comprehensively created and implemented to facilitate a virtuous relation between giving and receiving. Under such virtuous interaction, issues such as fiscal deficits, debt risks, and fiscal crises could be solved in essence, thus achieving peace and prosperity. Fiscal crises also exist in other countries with comprehensive legal systems. The fiscal crises that broke out in some EU counties and in the US are cases in point. Debt issues and deficit issues that broke out among those countries are also related to the legal causes mentioned above. Continuously reflecting

Distribution pressure and differences 37 and summarizing, as well as sustainably strengthening the rule of law construction – especially the rule of economic law – may help to break the cycle of the inevitable. With a rule of law background, efficient management of finance, taxation, and debt based on law could be conducted, thus formulating a wellperforming public economic order and the stable development of the country and the society.

2.3 Legal preventions from the risks of distribution difference In addition to fiscal risk and financial crises, people’s living pressure has become increasingly obvious, which is directly related to people’s income distribution. The related legal issue is also worth further research. In terms of people’s living pressure, the distribution gap is an issue. The high Gini Coefficient, wide distribution gap, and weak capacity to allocate abundant national income combined lead to the risk of distribution difference, which also leads to distribution crises. Therefore, distribution differences should be taken seriously to decrease the distribution brought on by distribution risks. To achieve the objectives above, legal preventions must be strengthened, as well as the rule of economic law, in order to enhance the distribution capacity of national income, and alleviate people’s living pressure. 2.3.1  Introduction    of distribution difference “It was the best of times, it was the worst of times”.60 There are various indicators which can be used to evaluate the era, such as its political, economic, social, and legal performances. Usually, economic efficiency and social equality rely on the rapid growth of the economy and the coordinated development of society. The distribution of social income is an important tie connecting the economy and society. Income distribution is also an important criterion for evaluating the era. Income distribution is of great importance across different eras. The circulation of governance and turbulence in history, as well as social evolution, are related to income distribution. For example, the idea of “eliminating the gap between the rich and the poor”61 and the culture of “worrying about the unequal” stem from the distribution of wealth, the focus on people’s livelihood and national development, as well as fairness and equality. However, the unavoidable difference, in reality, will directly lead to the distribution difference. Unequal distribution will become the norm. The treatment of distribution difference will affect the development of economy and society.62 In the case of China’s modern development path, the whole process of the reform and “opening” revolves around distribution and adjustment (Shouwen Zhang 2009).63 In recent years, issues such as imbalanced distribution and unequal distribution have gathered increasing attention from society. Governments have been conscious that fairness and efficiency are both important, but without giving them any priority. Therefore, distribution difference should be taken seriously under the reasonable range of control through different systems.

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Due to several factors, distribution difference is universal. The positive role of distribution difference shall be analyzed in an objective way while the negative impact, especially the potential risks and the ways to prevent them in law, require further studies. This chapter focuses on the rule of economic law over distribution difference. Based on analyzing the influential factors of distribution difference, the structural risk that is brought about by distribution risks will be proposed to reveal the internal connections between distribution difference and the rule of economic law. The necessity of the rule of economic law will also be strengthened. The possibility and related solution of the rule of economic law will be discussed, combining the unfairness led by distribution difference. During the discussion, the chapter tries to illustrate that in the long-term economic restructuring, effective adjustments should be made to the distribution structure, in order to decrease the distribution difference and its negative impact. The positive impact of distribution difference should be applied in an appropriate way, so as to achieve distributed justice,64 and thus facilitate equal distribution and social stability.    key factors affecting distribution difference 2.3.2  The Distribution difference is ubiquitous. To solve the problems caused by distribution difference, there is a need to analyze the key factors leading to distribution difference. In general, there are mainly three factors: subjects, space, and time. Correspondingly, there are also three important dimensions for studying the distributional difference, namely, the subject dimension, the space dimension, and the time dimension. First, from the subject dimension, each type of subject – government, enterprises, individuals as well as others – differs a lot in terms of the capacity, right, power, and information of the distribution. For instance, countries differ a lot in their capacity to manage public finance systems. The percentage of fiscal revenue differs a lot too. Among enterprises, each entity has different profitability and capacities of distribution. Among individuals, the capacity to earn income and participate in social distribution differs a lot. The differences above formulate the landscape of income distribution. Therefore, it is necessary to analyze each type of difference and understand it. Nowadays, the most obvious distribution issue in China is individual income. The wide distribution gap is a case in point with an excessively high Gini Coefficient. According to official conservative statistics, the Gini Coefficient is over 0.47 (Yongjun Liu et al. 2009)65 from 2003 to 2013. This suggests that the distribution gap is fairly obvious and severe (Table 2.1, Figure 2.1). By further refining the above distribution gap, it is easy to notice that wealthy people, who make up a very limited proportion of the total population, possess most of the wealth in China (Piketty 2014).66 Additionally, there are huge distribution disparities between urban and rural areas, among industries, and among various enterprises.

Distribution pressure and differences 39 Table 2.1 Gini Coefficient of China’s national income in the past decade Year

Gini Coefficient

2003 2004 2005 2006 2007 2008 2009 2010 2011

0.479 0.473 0.485 0.487 0.484 0.491 0.490 0.481 0.477

Source: The National Bureau of Statistics, January 20, 2014

0.492 0.49 0.488 0.486 0.484 0.482 0.48 0.478 0.476 0.474 0.472 2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Figure 2.1 Gini Coefficient of China (2003–2011)

Although the Gini Coefficient is important in evaluating the distribution gap, especially for intuitively depicting fairness among individual income distribution, it is necessary to introduce other “coefficients” including the proportion of government revenue, and corporate income in the entire social income. This is because these two coefficients can directly affect personal income and, therefore, should be considered when improving the system of personal income distribution. Second, from the dimension of space, distribution difference can be shown as geographical difference which is equally worthy of attention. For example, distribution difference around the globe is the main difference between the North and the South. And in China, the distribution difference is the main difference between the East and the West. After all, the income distribution on average relies on economic

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development. Developed countries and areas have a higher income in general. Such geographical difference requires special attention. In fact, W.A. Lewis, a US economist, has placed a special focus on the dual structure between urban and rural areas. In China, the difference between urban and rural areas exists whether in the eastern area, mid, or western areas. Generally speaking, urban residents have a higher income than rural residents. Despite different living costs and other costs, the PPP difference should be considered among different areas, to place it in line with the real income. As a matter of fact, the space dimension is exactly the extension and limitation of the subject dimension. The research on distribution differences from aspatial or geographic dimension provides readers with further clarity. Thirdly, in addition to the dimensions of subjects and of space, the dimension of time is also crucial. The difference in distribution time has a direct effect on relevant subjects. At different times, the real incomes of relevant entities may vary due to factors such as inflation or time value of currency. The same amount of money, allocated at different times, may have different effects on citizens. Thus, for fields like social security or capital return on markets over a long period, special attention should be paid to the time limits needed to make adjustments through the related designs on the system. From a macro perspective, the time difference of distribution also includes different regions at different times, during which different developing levels also underscore differences in distribution.67 Distribution, as well as people’s income in more developed regions, is generally higher than in less developed regions. For differences in development at this time and at this stage, China has already made adjustments and compensation through institutional arrangements including transferring payments and implementing export tax rebates.68 The subject differences, space differences, and time differences above directly lead to the distribution differences. Meanwhile, these three dimensions are closely connected with one another. For example, the distribution and income of subjects are influenced by the regions as well as the regions’ overall economic situations. Thus, the subjects’ differences in distribution can be significantly much clearer and comprehendible when space and time differences are taken into consideration. For instance, there are significant distribution differences between public servants in the eastern and western regions. Similarly, for public servants, there are also clear distribution differences between the present and the future. These space and time differences are so universal that it is imperative to take them into account during the design of distribution systems.    difference and structural risks 2.3.3  Distribution The distribution differences above, in turn, lead to differentiated distributions, namely a distribution system characterized by distribution variations among different subjects with regard to time, space, abilities, and so forth, which show as differences in the distribution of opportunities with different results among subjects. Notably, differentiated distribution is different from “equal distribution” or “no differences in distribution”. Equal distribution is based on the assumption that all

Distribution pressure and differences 41 subjects are undifferentiated so that they can be distributed evenly and equally. This kind of distribution not only can’t guarantee fairness, but it additionally has the potential to sacrifice efficiency despite its fair appearance. On the contrary, the differentiated distribution cares more about efficiency and is more likely to realize substantive fairness. In a nutshell, efficiency and fairness are always at the core when it comes to distribution. Thus, it is necessary to strike a balance between efficiency and fairness and to pay more attention to fairness given its importance as well as the gravity of the existing situation. Similarly, compared to efficiency, fairness generally gains much more attention in the legal field. This is because moderate differences in distribution are tolerable, while large ones are deemed unreasonable and are likely to trigger questions from the public due to their dissatisfaction, thereby creating a “distribution risk” and even a “distribution crisis” likely to affect social stability, impede economic development, and endanger the regime. In history, there have been many uprisings and revolutions resulting from distribution risks or crises. Moreover, history has shown that individual income distribution is vital for the stability of the entire distribution system. Only when the personal income gap is limited to a reasonable range can social security and long-term prosperity be ensured, and can turmoil and chaos be avoided. The key to fair distribution is the reduction of unreasonable distribution differences and the reduction of unreasonable disparities in distribution that has a direct impact on basic human rights and dignity (Shouwen Zhang 2012)69 including the right of subsistence and development, as well as the government’s legitimacy, control, and coercion. In addition, disparities in allocation can cause unfairness and create a variety of “structural risks” which need to be prevented and resolved based on specific conditions. In the overall distribution system, the proportions that various subjects and governments have accounted for can cause structural issues that not only have important economic and social significance but additionally have important political and legal significance. As ancient Chinese philosophers noted in the classical work, Daxue (The Great Learning): keeping wealth in governments splits the people while keeping wealth in the people unites them. The high revenue of governments and the low income of individuals can cause “structural risks” in distribution which will ruin the foundation of the market economy and affect people’s livelihood and development. To boost people’s livelihood and development and increase public support of the government, it is necessary to cut down the share of fiscal revenue in GDP, or in overall social wealth, and to reduce the tax revenue70 as well as various non-tax burdens. All of them require the full implementation of robust economic law and regulations. In addition, with regard to the distribution system on individual income, the proportion of wealth held by different subjects can also lead to “structural risk”. With most of the wealth held by a few people,71 the majority have a limited share of the total wealth. This situation results in a high Gini Coefficient and it not only affects people’s living conditions but also their overall economic and social development. To prevent the “structural risk” in a distribution system, it is fundamental to switch the structure of individual income distribution from “pyramid pattern”

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to “olive pattern” by means of “raising the low income, expanding the proportion of people with middle income, and lowering high income” based on the specific situations of different subjects. Moreover, with regard to the distribution system, distribution based on work or other factors can also cause “structural risk”. Generally, distribution based on work should always be the main route to realizing social fairness. In other words, if the majority of workers cannot obtain corresponding income according to their work, distribution risks will certainly become increasingly prominent because honest and hard work are not encouraged, while forfeiture, trading of money and power, unjust enrichment, and corruption are not restricted or regulated – eventually ruining the people’s faith in honest work. Thus, in order to reduce distribution risks and to realize fairness, it is necessary to ensure a distribution system based on the work by means of legislation that encourages people to work hard, work honestly, and promote harmony. For example, a well-known economist has once said: the principle of the tax law of a country should enhance morality and encourage people to be diligent. Therefore, laws and regulations are needed to ensure the equitable distribution of social wealth created by labour, so as to encourage honest work and to stimulate genuine creativity. Notably, among the structural risks, distribution risks caused by the unreasonable proportions among various subjects and governments require particular attention. This kind of risk is harmful both to people’s living conditions and to social stability and harmony. In conclusion, the differences in income proportion among relevant subjects (also called “structural differences”) result in differentiated distribution, and differentiated distribution is likely to cause “structural risks” that, if allowed to accumulate, may likely lead to distribution crises. So, it is necessary to take measures to promptly prevent and resolve distribution risks.72 The present distribution structure in China is established on the basis of the reform and “opening” as well as later adjustments; but unbalanced distribution has affected the steady economic growth and, to a certain extent, the coordinated development of the society. Therefore, it is necessary to reiterate the value of fair distribution in order to remove “structural risk” in the distribution system in a comprehensive and systematic manner through the effective regulations of relevant laws – especially the regulation of economic law. 2.3.4   The necessity of legal regulation of distribution differences Specific legal measures are vital for the adjustment and control of distribution differences. In general, it is necessary to use laws and regulations, in particular, economic law, to solve distribution differences as well as other distribution issues in China. 2.3.4.1 The need to regulate distribution differences with economic law Laws and regulations are needed to solve distribution differences, covering a wide range of areas. For example, distribution differences among different regions can

Distribution pressure and differences 43 lead to fiscal imbalances which can affect the supply of basic public goods, and, therefore, require a transfer payment system. Likewise, distribution differences among enterprises may affect the basic living standards of workers thereby making the implementation of a minimum wage system necessary. Distribution differences among individuals, especially those who lack or even lose the personal ability to work, can affect their basic livelihood. This makes a social security system imperative. In addition, many arrangements in tax law – including nontaxation, tax exemption, tax deduction, and so forth – are also aimed at solving the issue of distribution differences. Among a variety of laws and regulations needed to resolve the issue of distribution differences, more attention should be paid to economic law for its importance in adjusting distribution differences and controlling distribution risks. The following chapters further analyze this situation taking finance and tax law as examples. In general, the original and basic functions of fiscal and tax law lie in the distribution of income. That means the regulation of distribution can be viewed through the principles and theories of finance and tax laws. Many specific fiscal and tax laws, such as personal income tax law and property tax law, aim at fair and reasonable distribution. In one word, fiscal and tax laws can also be seen as distribution laws because every design in fiscal and tax laws, including the various types of elements, is related to distribution as well as the regulation of distribution. For example, there are elements concerning subjects (who can enjoy the benefits of distribution), objects (which is what the favoured subjects can get), and methods (how the favoured subjects can access the benefits of distribution). The elements above can be summarized as physical elements and procedural elements. The key elements include the subjects, objects, and methods (such as the method of calculation and the specific distribution method under special circumstances). Procedural elements include, among other things, the time and the place of distribution. In addition, there are many powers and rights in fiscal and tax laws such as powers and rights of preemption, immunity, debit, withdrawal, jurisdiction, warehousing, and supervision. In the process of distribution, all these elements can be much clearer when they are studied from the perspective of “distribution rights” – compared to when they are analyzed in their own rights. As a matter of fact, the “distribution right” is a basic category of distribution law and should be outlined clearly in distribution law but it is currently not clear or well enacted in China. Instead of being prescribed in distribution law or in departmental law, distribution rights are stipulated separately in many departmental laws. Fiscal laws address many issues related to distribution, such as financial delegation and taxation. Specific rights such as priority, deduction, and warehousing are examples of the distribution right which calls for fiscal and taxing arrangements. All of them require specific design in fiscal laws. In addition, given the tight connection between distribution and consumptionor, more specifically, people’s wealth, it is necessary to eliminate taxes in the addedvalue tax system in order to guarantee the livelihood of the people and to promote

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consumption.73 Besides, there should be arrangements to regulate luxury consumption and over-consumption in the consumption tax system.74 Likewise, tax-free arrangements are required in the social welfare area including education, healthcare, culture, childcare, and other aspects. Similar regulations are everywhere across the tax law system, especially in income tax law and property tax law. 2.3.4.2 Particular demand for fiscal and tax law to regulate China’s distribution differences As mentioned above, fiscal and tax law, as part of distribution law, should include arrangements on the wealth distribution among governmental departments, between governments and people, between governments and enterprise, between people and other subjects, as well as market participants. However, the current iteration of distribution differences requires more work in China. For example, national fiscal revenue remains at a relatively high level, which is an issue in fiscal law. In terms of tax law, repetitive taxing remains an issue under the compound tax system. Specifically, how to lower the heavy tax burden,75 and how to coordinate different types of tax and each taxation law, have been important issues in the tax law system’s construction. In addition, various non-tax income directly related to the national fiscal income has continued to increase over the past few years, which is also directly related to the weaknesses of the whole fiscal law system. As another example, the dearth of regulations in the primary distribution phase contributes to the large distribution gap among individuals and the high Gini Coefficient. Especially in the areas where capital and other funds gather rapidly, tax law plays a weak role in distribution, thus widening the distribution gap. Actually, it is necessary to strengthen the effective regulation of tax laws either in primary distribution, secondary distribution, or so-called tertiary distribution. But it is the insufficient regulation of fiscal and tax laws that have led to serious problems in China. In addition, we aim to maintain the distribution difference within the reasonable range when we strengthen the application of tax law to control the distribution difference. For instance, the preferential tax system reflects the differentiated treatment, which is an exception of the equal tax imposition. The system is designed to achieve substantive justice. Therefore, the system has to be designed in a reasonable way to narrow the gap. In fact, the preferential tax applied in former revolutionary base areas, areas inhabited by minority nationalities, rural, and poor, as well as on disadvantaged groups, aims at narrowing the distribution gap. With regard to the transfer payment system in fiscal law, the fiscal balance is achieved by narrowing the distribution gap, so as to facilitate the equalization of the supply of the public goods and ensure the equality of distribution. 2.3.5   Unfair distribution and the effective rule of economic law Unfair distribution is an issue directly related to distribution differences (Thompson 1997).76 In general, income distribution refers to the division and allocation of

Distribution pressure and differences 45 income. At present, the unfairness of income distribution mainly has two causes: (1) the unfair primary distribution, and (2) the unfair secondary distribution. For the primary distribution, unfairness may occur when it comes to the exact share of the state government, enterprises, organizations, and individuals. Therefore, the effective rule of the taxation law, competition law, financial law, and price law in the fields of economic law, helps to facilitate the fair division of income, thus alleviating disputes. As for the secondary distribution, we need to make reasonable arrangements on the state income, for instance, the exact proportion allocated to people’s livelihood and the protection of basic human rights. If the fiscal expenditure on housing and consumption takes a large portion of income, while the expenditure on fields such as education, medical care, and social security only accounts for a small portion, people would believe that the income distribution has not been equally distributed. Indeed, many unfair distributions are not reflected in the primary distribution, but in the secondary distribution. To resolve various issues of unfair distribution, each of the economic laws should play a role. For instance, competition law can ensure fair distribution by prohibiting a monopoly. At the same time, fair competition should ensure to provide market entities with equal access to profits. In the case of financial law, monetary value should be regulated at a stable level and financial supervision should be strengthened to prevent distribution unfairness in the financial field. In addition, the taxation system, especially the consumption tax, the income tax, as well as the real property tax should play an important role in regulation. Of course, at the stage of forming and distributing income, related taxation law, as well as other fiscal law systems, should also play a role. In addition to economic law, the coordination between economic law and other laws should be strengthened to effectively solve the distribution difference and prevent potential unfairness.77 Thus, the issues should be solved as follows: Firstly, it is necessary to clarify the income distribution right between government and citizens. For the citizens’ right to income distribution, the joint protection should be strengthened among the constitution, economic law, civil law, and commercial law, with the focus on the lawful distributions. As a result, the government will not account for an overly high proportion of the whole social income. Therefore, for fields related to government revenue such as taxation law, government power should be stipulated in law, and government should lawfully impose the tax. Secondly, it is necessary to clearly allocate the distribution rights among enterprises, individuals, and other subjects to ensure both horizontal and vertical fairness. In particular, individual income distribution should be favoured through various channels in the primary, secondary, and tertiary distributions so as to constantly promote balanced distributions. Thirdly, it is necessary to protect individual distribution rights by means of various laws including labour law, social security law, and civil and commercial law. Additionally, transfer payments in fiscal law, along with consumption tax, value-added tax, personal income tax, property tax, travel tax, deed tax, and so

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on, directly or indirectly play important roles in protecting individual distribution rights. In addition, there are many noteworthy arrangements in charge laws which can affect personal income. 2.3.6 Conclusion Distribution difference commonly exists under the influence of many factors. Differentiated distribution is thus formulated as an important type of distribution. Unlike the equal distribution, it is born under unfairness and adds to this. Therefore, both the positive role and negative role should be taken seriously, keeping the distribution difference within the appropriate range so as to prevent and resolve potential distribution risks and distribution crises.78 The regulation of distribution differences by means of economic law also reflects the so-called differential principle in economic law.79 As a matter of fact, distribution difference together with other signs of market failure like unfair distribution, economic imbalance, and social imbalance make economic law regulation necessary. Through the rule of economic law, positive remark will be made on the reasonable distribution gaps in reality. However, when the gap comes to an unreasonable level, negative remarks shall be made by economic law through the institutional rearrangement. Therefore, the regulation of economic law combines both positive encouragement and promotion, as well as negative restriction and prohibition. In addition, it is necessary to enhance the coordination and cooperation between the economic law system and other legal systems so as to jointly solve the issues of distribution differences.

Notes 1 Most countries generally pay more attention to “inflationary pressures” and “stagnant economic pressures”, that is, the pressures of stagnation and inflation, otherwise known, in economics, as the typical “dual pressures”. However, dual pressures related to finance and people’s livelihood are actually more fundamental and long-term and they have a great impact on fields like politics, economy, society, and law. 2 There are still few special research results on the “double pressure” of the national economy and the people’s livelihood. With the increasing pressure on people’s livelihood and the emergence of the “double pressure” problem, the research results in the field of law will continue to increase. 3 See Zhang Shouwen. (2012). The Right to Economic Development: From the Perspective of Economic Law. Modern Law Science, Issue 2, pp. 4–10. 4 Before the word “public finance” was introduced from the western world, expressions such as “Guoji” (the management of the country), “Guoyong” (national spending), “Duzhi” (annual spending) and “Suiji” (annual planning) were used to convey approximately the same concept in ancient China. 5 The growth rate of China’s fiscal revenue has been much higher than the growth rate of its GDP for many years, which has triggered a lot of doubts and discussions. Even considering the statistical calibre, it cannot be denied that the growth rate of fiscal revenue has been high year after year. This situation has changed in recent years. 6 The asymmetry of China’s financial system is partly shown given that local governments with lower revenues have huge expenditures, a situation that puts significant financial pressure on them. Shanguang Sun. (2007). Research on the Asymmetry of

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Local Government’s Financial Power and the Change of Constraint and Incentive Mechanism After The Tax Sharing System. Comparative Economic & Social Systems, (1), pp. 36–42.Shouwen Zhang. (2014). A Discussion on Sharing Type of Tax Distribution Institution and Related Law Improvement. Taxation Research, (1), pp. 60–65. For example, the local loans provided by the Audit Commission to the NPC Standing Committee for auditing the implementation of the 2010 central budget and other fiscal revenues and expenditures was RMB 10.7 trillion, surpassing the national fiscal revenue of RMB 10.37 trillion in 2011. Since China has ended its period of rapid economic growth, the slowdown in the economic growth has become the “new normal”. As a result, the fiscal revenue growth rate has declined, and various types of distribution pressures have been surfaced thus making the task of adjusting the economic structure more arduous. The related analysis could be seen from Hui Wang. (2010). Root, Influence and Reflection on the European Sovereign Debt Crisis. Public Finance Research, (5), pp. 75–77; Liansheng Zheng. (2010). Evolution, Influence, Reason and Reflection of EU Debt Issue. International Economic Review, (3), pp.108–121. SeeFan He. (1998). Constitution of Market Economy: Fiscal Problems in China. Beijing: Today’s China Publishing House, pp. 39–45. According to the analysis of historical data, scholars believe that the main reason for the reform of state-owned enterprises and the reform of profits and taxes is to increase government revenue and alleviate financial pressure. Zhihui Gu and Fang Cai. (2005). The Financial Pressure upon China and the Economic Transition therein from 1978 to 2002: the Theory and a Case Study. Management World, (7), pp. 5–15. Shaoguang Wang and Anguang Hu. (1993). A Study of China’s Capacity. Shenyang: Liaoning People’s Publishing House, pp. 6–10. For a detailed analysis of the “risk theory” of economic laws, see Shouwen Zhang. (2011). Excavation & Expansion of Theories on Economic Law in Post-crisis Era. Journal of Chongqing University (Social Science Edition), (3), pp. 96–101. For a detailed analysis, see Shouwen Zhang. (2012). The Right to Economic Development: From the Perspective of Economic Law. Modern Law Science, 17(03), pp. 4–10. The government has fully recognized the problems of the tax-sharing system. In the Decisions on Some Important Issues concerning the Overall Deepening of Reform (referred to as “the reform decisions”) made by the CPC Central Committee in 2013, the direction for the future improvement of the tax-sharing system was clarified. The division of liabilities and property power is always the core of improving the tax system. Since 2013, the state has attached significant importance to the liabilities associated with the property, and has emphasized that liabilities and property power should be matched as refined and strengthened in “the overall reform of the fiscal and taxation system program “in 2014. China’s fiscal expenditure on education accounted for 4% of GDP for the first time in 2012 making it one of the common rigid spending in the likes of social security spending and so forth. This tilt configuration, as an important feature of the tax-sharing system of China does bring about many problems. For a detailed analysis, see Shouwen Zhang. (2014). A Discussion on Sharing Type of Tax Distribution Institution and Related Law Improvement. Taxation Research, (1), pp. 60–65. Guan Zhong once said that “balanced finance contributes to the national stability while unbalanced finance undermines the national security. Arthur Laffer, the American economist and one of the representatives of the supplyschool, has put forward the famous “Laffer Curve”, which says that state taxation should be modest，mainly considering the affordability of the market participants and

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Distribution pressure and differences never entering the tax-forbidden zone because a modest low tax rate can improve the income distribution of both the state and the people at the same time. See Pusheng Liu. (1999). Responsiveness of Economic Law. Studies in Law and Business, (2), pp. 23–28. China has begun to attach importance to “two types of distribution” since the reform and “opening” of China. For a more detailed analysis, see Shouwen Zhang. (2009). The Meridian of the Development of China’s Economic Law – From [the] Distribution Perspective, Political Science and Technology Forum, Issue No. 6, pp. 124–137. After the in-depth study of economic history, well-known economists including Schumpeter, Hicks, North conclude that financial pressure is the direct cause of social change generalized as “Schumpeter-Hicks-Noth proposition”; And according to history, there are actually many disorders directly or indirectly related to fiscal pressures or financial crises. Fan He. (1998). Constitution of Market Economy: Fiscal Problems in China. Beijing: Today’s China Publishing House, pp. 39–45. In fact, the law itself is one of the public goods provided by the state with financial funds. If the laws aren’t properly formulated or implemented, the overall social welfare will decrease and the possibility of financial risks and financial crises will increase. Therefore, more attention should be paid to the law itself, as well as its function in promoting the overall social welfare. In addition, financial or fiscal crises can also function as an important entry for studying multiple legal issues including judicial independence, law enforcement and departmental legislation. However, the implementation of this law did not completely eliminate the fiscal deficit. Only after the US Congress passed the bill to balance the budget proposed by the Clinton Administration in 1998 did the fiscal surplus become a reality. For a more detailed study, See Buchanan, J. (1991). Public Finance. Translated from English by Zhao Xijun. Beijing: China Financial & Economic Publishing House, pp. 199–201. For further reference, see Hyde, A. (2006). Governant Budgeting: Theory, Practise and Politics. 3rd ed. Translated from English by Yannan Gou. Shanghai: Shanghai University of Finance and Economics Press, pp. 235–258. Since the conclusion of the Treaty of Mayo, many countries have focused on achieving this goal because they think it has a bearing on the status of the Euro and thus on the future development of the entire European Union. The dependence degree of debt, in finance, is an important indicator which reflects how much of the financial expenditure depends on borrowing. Scholars tend to give optimistic, pessimistic and neutral views on whether there will be room for issuing government bonds, whether a fiscal crisis is likely to occur and whether tax increases or tax cuts should be implemented based on their own research. For example, China’s fiscal deficit was RMB 259.8 billion in 2001, RMB 309.8 billion in 2002 and RMB 318.8 billion in 2003. The scale of the deficit has continued to increase year after year. By 2014, China’s annual fiscal deficit had reached RMB 1.35 trillion. “Implicit debt” refers to debts that are not necessarily based on statutory or contractual obligations but are based on public expectations or political pressures that must be borne by the government for moral or expected factors (such as social security, especially pension defaults responsibility). “Contingent Liabilities” means the government’s expenses that may occur under certain circumstances which are, at present, mainly the uncertain expenditure for coping with the financial crises. For example, the governments tend to shoulder the non-performing assets of the bank ultimately. As early as the early 20th century, the Italian financial scientist Pugiani put forward the question of “financial illusion” which representatives of Public choice theory, headed by Buchanan, paid much attention to. And we think the further theoretical expansion on this can be very helpful to the understanding of the financial distribution between the state and the people. For further reference, see Hyde, A. (2006). Governant

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Budgeting: Theory, Practise and Politics. 3rd ed. Translated from English by Yannan Gou. Shanghai: Shanghai University of Finance and Economics Press, pp. 338–339. For example, the principle of “no taxation without representation” in the 1215 Great Charter of the United Kingdom has not only formed the prototype of the statutory tax revenue but also laid the foundation for the ensuing legal principle, the principle of legal reservation or parliament remains. Generally, it established the basis for the decentralization of the modern constitution. Some scholars have studied the issue of “the financial crisis of France in 1788 and the fiscal origin of the revolution in 1789. For a more detailed study, see Hoffman, P. and Norberg, K. (2008). Fiscal Crises, Liberty, and Representative Government, 1450– 1789. Translated by Chu Jianguo. Shanghai: Gezhi Publishing House and Shanghai: Shanghai People’s Publishing House, p. 289. There are only very limited provisions on the budget approval, budget compilation and budget enforcement in China’s current constitution that are significantly different from those in countries such as Germany Finland, etc. where there are a large number of provisions on public economic issues such as budget, taxation and treasury bonds. China started the revision of the Budget Law since 2004 and didn’t finish it until August 2014 because there are so many controversies. Notably, with the revision of the budget law, the “integrity”, “normalization”, and “openness” of the budget has become a consensus. For example, there are similar constitutional provisions in countries like India, Greece, and Finland, and so on. Article 12 of the Budget Law in 2014 stipulates that budgets, at all levels, shall adhere to the principle of “overall and comprehensive arrangements, thrift and economy, consistence with capabilities, emphasis on performance, and balance between revenues and expenditure. The so-called “deficit economy” as its name has implied, actually involves many aspects such as specific taxation, finance，trade and so on. There were once hot discussions on this issue in the 1980s. For a more detailed study, see Cagan, P. (1988). Deficit Economy. Translated from English by Benyuan Tan. Beijing: China Economic Pulishing House. Junpei Wu. (1993). Thoughts on Deficit economy. Beijing: China Social Science Press. The second paragraph of Article 12 in China’s Budget Law, revised in 2014, stipulates that the governments, at all levels, shall establish a balancing mechanism for budgets to be carried over to the next year. There are inherent connections among these cycles. For a more detailed study, see Shouwen Zhang. (2002). Of Periodic Evolvement of Macro-control Law. Peking University Law Journal, 14(6), pp. 695–705. There are connections between the “inverted U hypothesis” of the deficit and the “Huang Zongxi law” that embodies the implication of “regulation and disorder cycle”. Piketti believes that Kuznets’s theory, the first systematic theory formed using a huge statistical tool, a major contribution, had a huge influence not only in the 1980s and 1990s but it is also adored by people at present. See Piketty, T. (2014). Capital in the Twenty-First Century. Translated from France by Shusong Ba. Beijing: CITIC Press, p. 12. Because never has a real administrative law that specifically stipulates the tax-sharing fiscal system been made. Therefore, the allocation of tax sources, the distribution of taxes and the distribution of income all show extreme non-institutionalization and uncertainty, which not only increases the game costs of the central and local governments, but also seriously violates the principle of statutory tax revenue, as well as the basic constitutional spirit. The Ministry of Finance is carrying out reforms in the centralized treasury receipt and payment system and it proposes to amend the current system of state treasury bonds

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Distribution pressure and differences with a very low legislative level so as to enhance the implementation of treasury receipt and payment system. Many facts show that, although the state has repeatedly emphasized that taxation should be conducted in accordance with the law, the arbitrariness in tax collection remains high. For example, under some circumstances, it is difficult to achieve the basic rule of “levying based on rate”. And the illegal tax agreements, including tax evasion and other phenomena are not uncommon. These reflect the overall lack of levying capacity and levying efforts. They also reflect the weak tax law awareness and the lack of enforcement of tax law. For more discussions on tax countries and budget countries, see Shaoguang Wang. (2007). From Tax State to Budget State. Readings, (10), pp. 3–13. Yinchu Ma argued that “treasury bonds and public debts differ from each other and cannot be regarded as one thing”. But in China, there is no difference between the two. See Yinchu Ma. (2001). Finance Study and Chinese Finance: Theory and Practice. Beijing: Commercial Press, p. 583. For example, article 35 of the Budget Law revised in 2014 in China stipulates that partial indispensable funds for construction investment in the budget of a province, autonomous region, or municipality directly under the Central Government as approved by the State Council may be raised in the form of debts including local government bonds within the limit determined by the State Council. The size of debts shall be reported by the State Council to the National People’s Congress or the Standing Committee of the National People’s Congress for approval. The debts incurred by the government of a province, autonomous region, or municipality directly under the Central Government within the limit approved by the State Council shall be included in the budget adjustment proposal at the same level, and be subject to the approval of the standing committee of the people’s congress at the same level. The debts incurred shall be accompanied with repayment plans and stable sources of funds for repayment, may only be used for expenditure for the public good under capital accounts, and may not be used for expenditure under current accounts. In addition, on May 19, 2014, the State Council approved 10 provinces and municipalities such as Beijing and Shanghai to spontaneously return local government bonds. The MOF also released the Pilot Measures for Spontaneous Self-return of Local Government Bonds in 2014. According to Article 28 of the Budget Law pre-amended by China in 2014, the scopes of revenues and expenditure in government fund budgets, state-owned capital operating budgets, and social insurance fund budgets shall be governed by laws, administrative regulations, and the provisions of the State Council. However, there are a lot of controversies and even many changes in the drafts of the budget law on whether the local governments shall have the power of issuing bonds which shows people’s different opinions on it. See Article 27 of the Budget Law before the revision in 2014 in China. Article 55 and Article 73 of the Budget Law before the revision of 2014 in China stipulates that people’s congresses and their standing committees at all levels have the right of change, the right to withdraw from illegal budgetary adjustments made by governments and the legal responsibilities the relevant personnel have to undertake if they improperly increase the governments’ debts. China has fully recognized such issues. For instance, the Decisions on Several Important Issues concerning the Overall Deepening of Reform (referred to as “the reform decision”) made by the CPC Central Committee in 2013 emphasizes that “we must enhance the regulation of the tax preference especially regional tax preference. Preferential tax policies should be prescribed uniformly by the special tax laws and regulations, and improper tax preference policies should be cleaned up and regulated.” This has been repeatedly illustrated by scholars’ researches like North, has been confirmed by the development of human history and will continue to be substantiated by future development. See North, D. (1999). The Rise of The Western World：A New

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Economic History. Translated from English by Yining Li. Beijing: Huaxia Publishing House, pp. 9–13. In fact, the several constitutional amendments made by China in recent years are mainly in the economic field, which reflects the characteristics of the times. However, it seems that academic circles did not pay enough attention to them. “The “public-private dualistic structure” is of universal significance. For example, the basic assumption at the cognitive level is helpful for the fundamental analysis of many legal issues. Shouwen Zhang. (2001). A Fundamental Assumption of the Economic Jurisprudence. Modern Law Science, 23(6), pp. 46–55. See Shouwen Zhang. (2003). A Discussion on Establishing Fundamental Principle of Economic Law. Journal of Peking University (Philosophy and Social Sciences), 40(2), pp. 83–90. See Article 2 and Article 3 of the Chinese Constitution. In fact, the institutional reforms that all previous governments have tried to carry out aimed at transforming the functions of government so as to solve the problems of “ten sheep, nine herdsmen”, “holding down a job without doing a stroke of work”, and “eating fiscal meals”. Of course, only if such reforms are put in place can the problem be completely resolved. Otherwise, there may be a “law of Huang Zongxi” on institutional reforms, that is, after each reform, there will be a big rebound, which will make the organization more bloated, the fiscal expenses greater and the deficit problem more pronounced. For a more detailed study of Wagner’s Law, see Wildavsky, A. (2009). Budgeting: A Comparative Theory Of Budgetary Processes. Translated from English by Yannan Gou. Shanghai: Shanghai University of Finance and Economics Press, pp. 296–302. Only everyone gets what they deserve. Can this system be called reasonable when it is also an important manifestation of the distribution of justice? A good distribution system should make all kinds of subjects have their own place. Of course, from a different perspective, there will be a different understanding of the distribution of justice. For a more detailed study, see Dazhi Yao. (2011). Distributive Justice: From the Standpoints of Social Vulnerable Groups. Philosophical Researches, (3), p. 107; Zhongqiao Duan. (2013). Distributive Justice, Equality and Deserve: Answering Prof. Yao Dazhi. Jilin University Journal Social Science Edition, 53(4), p. 34. Despite the different perspectives and fields of observation and judgment, Dickens’ phrase applies to many fields. For example, the rapid economic growth in previous years has convinced the nationals in many countries that the present situation is a good one. Many social and environmental problems, caused by the rapid growth, have also led many to think that this is a bad era. In terms of distribution, Confucius put forward the idea of “not worry about poverty, but rather about the uneven distribution of wealth” and “no inequality means no-poverty”, believing that both the states and families suffer from uneven distribution compared to scarcity. (The Analects, Chapter 16), which has a profound impact on the distribution culture. In many countries with planned economy, great attention was paid to narrowing the disparities in distribution, opposing the differences in individual distribution and emphasizing egalitarianism. The idea of “equalizing wealth” proposed in history aims at eliminating the disparity in distribution showing people’s attention to fair distribution in a certain period of time. However, the idea of “letting some people get rich first” reflects the acknowledgment and affirmation of the distributional difference in a certain period of time. See Shouwen Zhang. (2009). The Meridian of the Development of China’s Economic Law – From [the] Distribution Perspective. Political Science and Technology Forum, 27(06), pp. 124–137.

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64 From Confucius to Aristotle, from Rawls to Nozick, ancient sages and scholars throughout history paid great attention to this central issue of distributive justice. Some scholars think that the shift from the theory of classical distribution to the theory of modern distribution took place at the turn of the 19th century and the 20th century when people paid more attention to the issue of the distribution justice. See Fleischacker, S. (2010). A Short History of Distributive Justice. Translated from English by Wanwei Wu. Beijing: Yilin Translation Publishing House, p. 115. 65 Some scholars have found that the Gini Coefficient of China reached 0.47 in 2004 and was already 0.407 in 1993. Apparently, both of these exceeded the internationally accepted warning line of 0.4. See Yongjun Liu, et al. (2009) Research on the Income Distribution Gap of Chinese Residents. Beijing: Economic Science Press, p. 2. Some even concluded that Gini Efficiency has exceeded 0.5. 66 Piketty, the French economist, reached this conclusion by “using extensive historical materials and comparative data which cover nearly three centuries and more than 20 countries while using a novel theoretical framework for further analysis”. See Piketty, T. (2014). Capital in the Twenty-First Century. Translated from France by Shusong Ba. Beijing: CITIC Press, p. 1. 67 In 1960, Rostow, an American economist, put forward the theory of “stages of economic growth”, which divides the process of economic development of a country into six stages: traditional society, society of having takeoff, takeoff, maturity, mass consumption and transcendence public consumption stage. At different stages, the requirements for distribution and consumption are different. See Rostow, W. (2010). The Stages of Economic Growth: Anon-Communist Manifesto. Translated from English by Xibao Guo and Songmao Wang, Beijing: China Social Sciences Press. 68 In terms of determining the key points of transferring payments, the state is leaning toward a more backward region in its development stage. In terms of arranging counterpart support, the state emphasizes that provinces and municipalities in developed regions should support less developed regions. Generally, the central authorities also require developed regions to make their own arrangements for the funding required for some policies. 69 See Shouwen Zhang. (2012).The Right to Economic Development: From the Perspective of Economic Law. Modern Law Science, 17(02), pp. 4–10. 70 According to Forbes magazine’s Tax Misery Index rankings, China was ranked second in the world, that is, the tax burden is considered very high although many institutions and scholars in China object the method of calculation. 71 In the year prior to the financial crisis of 2008, the wealth that the top 0.1% of households in the United States owned was 220 times that of the average income of 90% of the bottom-line families in the community. The richest 1% of the population owned 35% of the total national wealth. See Stiglitz, J. (2013). The Price of Inequality. Translated from English by Ziyuan Zhang. Beijing: China Machine Press, p. 3. 72 The risk dimension can be useful for analyzing both the issues of economic law and the issues of distribution. For a more detailed analysis, see Feirong Peng and Quanxing Wang. (2011). On the Government Accountability in the Distributive Justice: From the Perspective of Risk and Law. Journal of Social Science, (1), pp. 103–110. 73 The current VAT system in China stipulates a 13% low tax rate covering fields such as grain and oil, water, coal, gas and agriculture, which mainly solve the problems of the people’s livelihood. Furthermore, the stipulation on VAT exemption is also a manifestation of the spirit of a low tax rate system. 74 Now, consumption taxes on expensive jewelry, jewelry, jade, luxury watches, yachts, and so on, is also the embodiment of this spirit. However, on the whole, there is still much room to give full play to the role of consumption tax. 75 Reducing the tax burden and simplifying the tax system were the targets set forth explicitly in the 1994 tax reform. However, this goal has not yet been fully realized. After 2008, the implementation of the “structural tax reduction” by the state, especially

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the pilot program “replace business tax with value-added tax”, are all efforts in this regard. Some scholars think that fair distribution is the central issue in both the political economy and also the entire field of social science. In a word, distribution is one of the fundamental issues of society. See Thompson, W. (1997). An Inquiry into the Principles of the Distribution of Wealth Most Conducive to Human Happiness. Translated from English by Muli He. Beijing: Commercial Press, pp. 19–20. Some scholars believe that the main reason for the widening income gap is the unfair distribution of resources and assets which is, indeed, an important issue of real concern. See: More needs to be done to tackling inequality than economic legislating. Fang Cai. (2012). How to Understand the Reality of China’s Income Distribution Reform: An Analytical Framework for Seeking Common Ground while Reserving Differences. In: Jinglian Wu ed., Comparison Vol. 59. Beijing: CITIC Press, p. 22. Piketty’s research shows that the share of national income of the top 10% of Americans peaked twice in the 20th century, once in 1928 (before the Great Depression in 1929) and again in 2007 (The eve of the crisis). Therefore, he believes there is no doubt that the expansion of US income inequality will, to a certain extent, lead to the country’s financial instability. See Piketty, T. (2014). Capital in the Twenty-First Century. Translated from France by Shusong Ba. Beijing: CITIC Press, pp. 302–303. The differential principle is one of the basic rules in the economic law which contributes to the understanding of the aforesaid regulation of distribution differences by means of economic laws. Shouwen Zhang. (2013). General Theory of Economic Law. Beijing: Peking University Press, pp. 7–10.

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Relationship and structure of co-integrating distribution

As the main issues of distribution, distribution pressure and disparities can be ultimately attributed to unreasonable distribution relationships and structures. Therefore, it is necessary to coordinate and adjust unreasonable distribution relationships and structures as a way of achieving effective “co-integration”. Co-integration is an econometrics concept referring to the coordination, integration and adjustment to distribution relationship and distribution structure. Faced with a complicated distribution relationship, related issues cannot be solved only by the market or the market mechanism. National coordination should be introduced here for its important role in safeguarding the distribution relationship and harmony, which is characterized by its special subjects, fields and measures. Therefore, many institutional practices have been implemented in China and the studies of these will be helpful to uncover the existing problems in distribution. Then, solutions can be proposed. There are two types of national coordination – (1) policy and (2) law. The “dual regulation” through law and policies helps to optimize the distribution structure. Distribution structure is an integral part of the whole economic structure. Studies of economic structure regulation help to clarify the specific problems existing in distribution structure. Therefore, incorporating the macro-economic structure helps to examine the dual regulation of the distribution structure. In the process of adjusting or optimizing the distribution structure, countries tend to use a great deal of market-boosting measures, including a series of legal norms which mostly pertain to economic law. Thus, it is necessary to take the leading elements of economic law as an example to analyze and reveal its functions in adjusting distribution-related issues. To this end, the present chapter first discusses how governments coordinate the pluralistic distribution relationships and then explores the adjustments of the distribution structure and the overall economic structure. It further reveals the essence of “promoting” economic law in resolving distribution issues.

3.1 National coordination of pluralistic distribution relationships Resolving distribution issues relates to the adjustment of pluralistic distribution relationships in preventing distribution risks and distribution crises. The

Structure of co-integrating distribution 55 distribution relationships between country and people, enterprises and individuals or the alleviation of fiscal pressure and living pressure, require national coordination. The birth of distribution issues, the expansion of distribution risks and the occurrence of distribution crises result from market disorder. Therefore, countries are focusing on national-level coordination in the distribution field such as the national social security system and the establishment of transfer payments, in order to regulate complicated and pluralistic distribution relationships. Strengthening national coordination is of great importance to the distribution field. It is necessary to explore the main objectives and specific measures adopted in coordinating distributions. The thought of systematology could also be integrated into the analysis. In addition, national coordination on distribution should not only be studied in theory but should also be discussed through the combination of related systems in reality. For this reason, the following sections will analyze the national coordination of pluralistic distribution relationships and discuss relevant coordination ideas as well as their importance in solving the actual problems arising from distribution risks and crises. 3.1.1 Basic understandings of national coordination The coordination of distribution relationships by governments reflects the concept of coordination which can be traced back to ancient China.1 As a matter of fact, there is a close connection between the idea of coordination and system theory, both of which emphasize the internal and external coherence of a system to determine the overall effectiveness of the system. Therefore, coordination, as a means and as an end, involves the overall and efficient functioning of the system with many issues related to the system operating as a whole with the intention of realizing the overall goal. Coordination is needed to ensure that all relevant elements operate smoothly for the wellbeing of the entire system. From the perspective of semantic analysis, the term “Xie Tiao” (being coordinated or to coordinate) has its usage in Chinese. As an adjective, it means “made fit and or match”2 and as a verb, it means “to fit and match”. Here we use it in its second sense. From the perspective of economic law, coordination by governments is irreplaceable in economic and social development, in the allocation of powers and rights, in the adjustment of distribution relationships and in the construction of related institutional systems. Additionally, national coordination matters when economic and social development fails to keep the same pace, when the unbalanced allocation of powers and rights affects the protection of legal interests and when there are legal conflicts among adjustments of distribution relationships in time, space and territory. Strengthening national coordination is of great importance in the pluralistic and complicated relationship. The national coordination of distribution relationships can be understood in the following three aspects. Firstly, the national government is the subject of coordination. The national government plays a leading role when it participates in distribution or in secondary distribution – and it will last for the long-term. Secondly, coordination targets distribution since it is

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“economic coordination” that intends to boost the distribution of income, wealth and resources. Thirdly, coordination is achieved particularly via law and policy, that is, through the legitimate economic coordination instruments (Zixuan Yang 2009).3 From these, three basic types of distribution are distinguishable: the national government’s coordination, economic coordination and legal coordination. Together, they add to the analysis of coordinated distribution by governments and solutions proposed, as is illustrated in the following sections. Firstly, since the coordinating subject is the national government, the system related to national regulation on distribution relationship is more like public law. Specifically, finance law, tax law, fiscal law, price law and market regulation law are indisputably public law in nature given their focus on national and public interests4 which also determines the behaviour pattern of their agents, rights, obligations and responsibility structure, the specific awareness of distribution system along with its structure and functions, the understanding of the distribution system and the relationships among economic law, civil and commercial law, social law and administrative law. Secondly, in terms of economic coordination, national coordination focuses on the distribution field related to the economy. Distribution is an extremely important part of secondary social production. In general, the state does not directly interfere in the process of producing or exchange. The outcome of primary distribution will also be protected in accordance with the law. However, eminent problems in distribution that precede risks, crises and damages to the public interest justify that the government’s involvement in the redistribution mechanism,5 or legislative activism intended to achieve sustained economic development, prevents it from the ill effects of distributive crises. The coordination of distribution relationship at the national level is closely related to the market disorder theory, the system evolution theory and the theory of legal function. Market disorder in distribution requires national coordination of the distribution relationship. Therefore, a new distribution theory needs to be explored to make up for the weaknesses of the traditional system. We see that market disorder requires national coordination thus leading to system evolution. Here the key factor is system function. Thirdly, among all the measures taken in national coordination, legal measures play an important role. Meanwhile, the rule of economic law indicates that policies and measures should be gradually legislated. When economic law was applied to regulate the distribution relationship, economic law, in spite of its policy basis, requires legalizing the economic policies, as the legislation. The “statutory principle” that runs through various branches of economic law, including the principles of statutory budget, statutory tax revenue and statutory money, is universally accepted (Baoshu Wang 2004),6 because of the restriction and enforcement of public power, the influence of economic coordination on citizens’ rights and the legal requirement of economic law itself. In general, the statutory principle should guide the national coordination in various types of distribution so as to better reflect the spirit of the rule of law.7

Structure of co-integrating distribution 57 3.1.2 Goals of national coordination and the interest distribution National coordination of economic performance aims to “conform the economic performance with the requirements of objective rules, in order to promote the development of the national economy” (Zixuan Yang 2009).8 Similarly, the rule of distribution should also be complied to prevent distribution risks and distribution crises, thus promoting economic and social development. Objective rule is a kind of law, senior to the regulation and legislation that are stipulated by humans, which cannot be created, changed or eliminated by people. Therefore, only when the distribution rule is fully abided, i.e. fully reflected in and utilized by the law, can the coordination of each type of distribution relationship can be more in line with the objective rule, thus making the economy perform in a sustainable way. Accordingly, when coordinating distributional relationships, the state must follow the principles of distribution and “capitalize on the trend”9 which is, itself, effective coordination. Only by following objective rules and coordinating based on a distribution system governed by law can the state achieve its goal of promoting economic development. Although the core objective of national coordination in distribution is the prevention of risks and crises, as well as the promotion of economy and society, the theory schools – such as liberalism, interventionism, evolutionism and constructivism – hold different attitudes towards the role, cost and benefit of national coordination. However, strengthening national coordination has been a common practice for each country, especially in terms of protecting human rights and preventing risks and crises. Since the global financial crisis broke out in 2008, people have achieved a consensus on the importance of national coordination.10 According to the theory of institutional economics, the involvement of the government can be justified in terms of the supply of public goods given that efficient solutions to conflicts of interests among individuals are deterred by high transactional costs. Therefore, a national government, as the supplier of public goods, should shoulder the role of coordinator. Indeed, national coordination itself aims to supply public goods. Considering the supplier of public goods shall be selfless, non-for-profit, with the highest status and strongest capacity, only national governments could meet the requirements. When coordinating the pluralistic distribution relationships, the interests in need of protection are diversified. For instance, the interests protected by economic law not only refer to the public benefit in society but also individual benefits and state interests. Effective protection is required for state interests, fiscal interests, tax interests or even financial interests. If protection only covers public social interest, instead of the basic individual interest or the key state interest, then the public social interest is hard to achieve. Therefore, the coordination protects the interest of each subject, for the purpose of the balanced development of the subject interest, which is also an important part of economic law. As for adjustments to distributional relationships, the “appropriateness” of distribution does not equal absolute or relative egalitarianism (Zixuan Yang 2009).11

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Instead, it highlights that “any one could play their proper role” so that the legal interests of different subjects are protected. Then, effective protection can combine different stages to achieve a balance between efficiency and equality. It can help to prevent the imbalanced focus on some subjects as well as prevent the influence brought by egalitarianism, thus ensuring distribution order and promoting the coordinated development of economy and society. 3.1.3 National coordination from the perspective of system theory The idea of government coordination among multiple distribution relationships is rooted in system theory which is often analyzed in terms of wholeness, hierarchy, structure and function of the distribution system,12 thus being susceptible to resolving many theoretical and practical distribution-related issues. Firstly, holists advocate for the overall coordination of distribution relationships. In terms of distribution, social distribution could be regarded as a whole ecosystem. The subjects, such as the state, the enterprise and the individual are treated as part of the distribution ecosystem. As a result, we could reserve the distribution status and the distribution capacity of each subject, thus discovering the root of distribution conflicts. The distribution between the country and the people is not only meaningful in the constitution but also makes sense in the specific economic law. The distribution reflects conflicts between private profits and social public interests13 – which need to be addressed emphatically. Secondly, hierarchical coordination refers to the coordination of the distribution relationship across different levels which are formed during the past economic development as well as the hierarchical order. For instance, the revenue distribution between central and local governments and the revenue distribution between the governments at different levels are both related to hierarchical coordination. In addition, the issues related to distribution and coordination also exist in the field of domestic economic law and international economic law. After the global financial crisis broke out in 2008, the international community generally agreed to strengthen policy coordination and legal coordination in distribution. Therefore, cooperation and coordination in fields such as treasury, taxation and finance should be strengthened. Thirdly, structural and functional coordination is crucial because every special structure has its own functions. Thus, internal coordination on the structure and function is of great importance. The effective solutions to distribution issues require effective adjustments to the internal structure of the relevant laws, rendering them capable of solving such issues. The branch laws of economic law are capable of affecting the regulation of distribution factors, thus playing an important role in distribution issues. Furthermore, from a structural perspective, the prevention of distribution risks and distribution crises shall optimize the distribution structure in the economy in order to effectively solve the distribution issues.14 The number and percentage of legal norms in distribution shall also be strengthened. At the same time, it is

Structure of co-integrating distribution 59 necessary to focus on the proportion assigned to every entity in the overall distribution system and make adjustments accordingly. The combinations of systems that regulate the distribution relationship create an ecosystem. For the internal and external balance, harmony inside and outside should be achieved, which refers to the internal coordinated relationship as well as the external coordination. Therefore, structural optimization shall be strengthened to regulate each legal system applicable to the distribution relationship. The structures covering subjects, acts, rights and obligation, as well as responsibility, should be fulfilled, thus making each structure more balanced and achieving the systematic function of each distribution system. 3.1.4 The system of national coordination of distribution relationships in practice Due to the importance of the distribution, the Chinese government has always attached considerable importance to various means such as laws and policies in coordination. There have been significant practices at the institutional level. For example, in 2013, the State Council approved the “Opinions on Deepening the Reform of the Income Distribution System” (hereinafter referred to as the “Opinions on Distribution Reform”)15 which reflects many of the theories and measures that this book has researched. The following discussion will exemplify the “Opinions on Distribution Reform” in consideration of the national coordination of distribution relationship. 3.1.4.1 National coordination in income distribution systems Income distribution systems are formed through national coordination of the income distribution relationship. “Opinions on Distribution Reform” emphasizes that the income distribution system is not only a basic system in China’s economic and social development but also the cornerstone of the market economy. Since the reform and “opening”, China has gradually broken away from egalitarianism under the planned economy and has allowed and encouraged holders of capital, technology and management to participate in the distribution process according to their marginal products. At present, the distribution system in which distribution according to work is dominant and a variety of modes of distribution coexist has basically been established. The regulating framework of redistribution has been primarily established through tax revenue, social security and transfer payment. However, the existing distribution system did not solve all the problems, especially the irrationaldistribution at a macro-level, the large distribution gap among residents, the disorder of income distribution and invisible and illegal income. Solving such complex problems would be very arduous and complicated and China still has a long way to go. Therefore, it is necessary to move from the current situation and towards developing ex-ante expectations on long-term development and well-organized progress.

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Value theory unveils the challenges of dealing with issues of efficiency and fairness in primary distribution and redistribution. Based on the focus and understanding of efficiency and fairness, the “Opinions on Distribution Reform” addresses the importance of efficiency and fairness in the primary distribution and redistribution. To be more specific, efficiency may dominate at the primary distribution stage in order to create a fair competition environment and safeguard the dominant position of wages received by labour. However, fairness should be more pronounced at the redistribution given the intention to improve efficiency in the allocation of public resources and to narrow the income gap. Additionally, as for the means of resolving distribution issues, the “Opinions on Distribution Reform” highlight order in the market economy, give full play to the fundamental role of the market mechanism in the allocation of factors and prices, and at the same time, insist on government control aimed at balancing the distribution structure, regulating the distribution process, increasing the income of the poor and diminishing unreasonably excessive income.16 We see the national coordination of income distribution relationships through the focus on redistribution, government regulation and ordering of the distribution hierarchy. “Opinions on Distribution Reform” specifically enumerates the important measures in distribution which intend to encourage redistribution, increase investment in people’s livelihood, augment agricultural subsidies, comprehensively implement the free and compulsory education, establish a social security system, deepen the reform of the medical and health system, vigorously strengthen the construction of affordable housing, raise the minimum subsistence allowances for urban and rural areas, reduce poverty and raise the level of pension for retirees in enterprises. These measures have the positive effect of effectively guaranteeing basic human rights and contribute to preventing and resolving distribution risks and crises. The reform of the income distribution system through national coordination has multiple benefits including: (1) it helps to optimize the income distribution structure and build a long-term mechanism for expanding consumer demand and to accelerate the transformation of the development pathway; (2) it helps to solve the issues caused by unfair distribution, prevent an increase in the income gap, regulate the order of distribution, and maintain social justice, harmony and stability; (3) it releases the tension between labour and capital, cities and rural areas as well as government and markets, thereby promoting reforms in related fields and facilitating the market mechanism; (4) it upholds that the dividends of reform and development should be shared by all. This way, the reform serves as material and institutional foundation for the progressive realization of common prosperity. 3.1.4.2 Goals and measures taken by China to promote income distribution reforms In promoting the reform of income distribution, China aims to: (1) adjust the income distribution structure thus creating an open and fair institutional environment; (2) adhere to distribution, seeing labour as the principle and various

Structure of co-integrating distribution 61 distribution modes as supplemental; (3) keep improving the primary distribution mechanism that labour, capital, technology, management and other factors are rewarded for according to their contribution, speeding up and improving the redistribution mechanism with taxation, social security and transfer payment as major tools;17 (4) increase the income of urban and rural residents, narrowing the income gap and standardizing the distribution order. In addition, reform ensures that the income of residents increases proportionately with economic development, that labour remuneration grows with the improvement of labour productivity to systematically form a rational and orderly income distribution pattern and to promote sustainable and healthy economic development, social harmony and stability. Considering the requirements above and the prominent issues related to the current distribution gap, distribution structure, distribution order and distribution pattern, “Opinions on Distribution Reform” set forth the distribution system reform goals for China, as follows: First, with regard to the total amount, the income of urban and rural residents should be doubled.18 In terms of the distribution structure, the middle-income groups should be expanded an “olive-type” distribution structure should be put in place. The distribution gap should be systematically narrowed and the large income gap between the region and residents effectively should be bridged, and the number of people in need of poverty alleviation programmes would significantly drop. Second, the distribution order should be considerably improved while protecting legitimate income, adjusting excessively high income, regulating invisible income and eliminating illegally obtained income. Third, a reasonable distribution pattern should be maintained by means of increasing the proportion of resident income in the national income distribution, the proportion of labour remuneration in the primary distribution and the proportion of public expenditure including social security and employment in public finance. In order to achieve those goals, both incentives and restrictive measures need to be adopted by relevant systems based on economic law with a view to establishing a “promoting type” of distribution system capable of solving the problems of distribution. 3.1.4.2.1 THE PRIMARY DISTRIBUTION PROMOTION SYSTEM

First, build an employment promotion system. Employment can directly affect income and distribution. China promulgated the Employment Promotion Law19 and placed special emphasis on promoting fair employment opportunities in the document “Opinions on Distribution Reform”. The specific measures have been listed as follows: (1) give full support to the service industries, labour-intensive enterprises, small and micro enterprises and innovative technology enterprises so as to create more jobs; (2) improve tax-reduction, public service jobs, job training, social insurance, skill appraisal subsidies and other policies intended to foster youth employment, assist rural migrant workers, poor people in urban areas and veterans; (3) improve and implement small-scale loans and financial incentives to encourage independent entrepreneurship. The promotion measures mentioned

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above involve various economic law systems including various laws such as fiscal, tax, financial, market and industrial laws. Second, address the system promoting the reasonable growth of wage. To narrow the income gap, it is necessary to promote the reasonable growth of wages and salaries of middle- and low-income workers. “Opinions on Distribution Reform” stipulate the following important measures: (1) establish a wage determination and growth mechanism that detects supply and demand changes in the labour market as well as the revenue of enterprises; (2) improve wage guidelines while establishing a unified and standardized survey on enterprise wage and the wage disclosure system; (3) make timely adjustments to the minimum wage according to economic development, price fluctuation and other factors. In conclusion, reasonable wage increases for middle- and low-income earners are significant in ensuring fundamental human rights, narrowing the income distribution gap, mitigating distribution risks, stimulating domestic demand and promoting steady economic growth – all of which constitute the main goal of economic growth. Third, evaluate the system promoting the growth of residents’ property income. To solve the problem of income distribution, it’s also necessary to increase the property income of residents. To this end, “Opinions on Distribution Reform” puts forward the following measures: (1) speed up the development of multi-level capital markets, implement a dividend/bonus system of listed companies,20 and strengthen regulatory measures so as to protect the legitimate rights and interests of investors, especially small and medium investors; (2) promote reform of interest rate liberalization, moderately expand the floating range of interest rates on deposits and loans, protect the rights and interests of depositors and strictly regulate bank charges;21 (3) enrich fund products such as bond funds and money funds. In fact, all these measures are closely related to economic law, especially those laws governing securities and banking. 3.1.4.2.2 THE DISTRIBUTION ARRANGEMENT SYSTEM

In general, the redistribution system is based on the relevant systems of economic law and social law. China is currently pursuing an upgraded redistribution adjustment mechanism using the major tools of taxation, social security and transfer payments. Firstly, in terms of fiscal law, the main objective is to improve the public financial system and the transfer payment system, adjust the fiscal expenditure structure and vigorously promote basic public service equalization. Secondly, in terms of tax law, the major goals are to increase tax adjustments, reform the personal income tax system, improve the property tax system, promote structural tax cuts and reduce the tax burden on low- and middle-income earners as well as small and micro-enterprises.22 These measures undoubtedly favour a tax system that promotes structural optimization and social welfare. Thirdly, in the area of social security law, China is committed to building a social security system with a whole coverage of the rural and urban residents. The system should equally centre on enhancing fairness, adaptive liquidity and sustainability; continuously

Structure of co-integrating distribution 63 improving the social insurance, social assistance and social welfare so as to steadily raise the level of protection. Among all the institutions, the “promoting” measures require more attention. For example, in terms of personal income tax law, China intends to promote fair distribution by adopting the following measures: (1) speed up the establishment of a comprehensive and classified individual income tax system; (2) improve the levy, management and penalties of personal income tax for high-income earners whose total income will fall in the scope of the expropriation to narrow the distribution gap; (3) establish and improve the two-way declaration of personal income system and a unified national taxpayer identification number system to regulate the collection of taxes; (4) eliminate tax exemption on personal income tax and other bonuses obtained by foreign individuals from foreign-invested enterprises so as to achieve fair distribution. China intends to apply some important property tax systems to promote the fairness of income distribution. For instance, with regard to the law of real property tax, China is planning to: (1) fulfil the taxation system such as real estate ownership and transaction, expanding the range of the property taxes on residential housing;23 (2) elaborate on the policies of the differentiated real property tax, strengthen tax collection and management of stocking houses. In terms of resource tax, the government will increase the tax duty level on the resource tax, expanding the range. In addition, China is also conducting studies on imposing the inheritance tax at the appropriate time. 3.1.5 Brief summary Given the pluralistic and complicated distribution relationships, national coordination is vital to the effective alleviation of financial and living pressure, the elimination of the income gap and the prevention of distribution risks and crises. The purpose of national coordination is to make distribution more “appropriate” and to make complex pluralistic distribution more harmonious with a view to amending the distribution imbalance. Due to the ability of market participants to solve unfair distribution, distribution disparities, chaotic distribution order and irrational allocation patterns in the context of market failure, it is necessary to strengthen national coordination. Coordination implemented by the national government will be strong in its implementation. At the same time, the national government also needs to consider the legitimacy of laws and the reasonableness of the economy, in accordance with the legal measures applied to the specific distribution relationships in the economy. China has been focusing on reform to deepen the income distribution system. The objective and theory are in line with that of national coordination. At the same time, national coordination should reflect the system theory. Therefore, in deepening the reform of the income distribution system, a rethinking of the system and the adoption of holistic values should be considered to strengthen the top design and mechanism coordination,24 which is fundamental to the macro-level adjustment of the distribution structure.

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3.2 Dual-adjustment of the distribution structure There are two main instruments to coordinate distribution relationships: (1) policy and (2) the law. Considering that distribution activities and distribution relationship are directly related to the distribution structure, the adjustment of economic structures will directly influence the solution to distribution issues. Therefore, the distribution structure in the following context will be regarded as an integral part of economic structure, to discuss the economic structure and the policy and legal issues. The special role of policy and law, as well as the importance of legal norms to the distribution activities, will be illustrated as key measures to adjust each type of structural regulation. 3.2.1 Dual-adjustment of economic structure and distribution Structure Economic structure can have a direct effect on the quality and quantity of economic development. That means the one-sided emphasis on economic growth will inevitably lead to problems making it extremely difficult to surpass the “limit of growth” and to achieve sustainable economic development (Meadows et al. 2006).25 Therefore, while focusing on economic growth, we must continue to optimize economic structure. In fact, the adjustment of economic structure is a basic issue that a country needs to constantly address26 given its long-term and perpetual impact on social distribution. In many industries and fields, effective economic development requires continuous structural adjustment in the economy and the enhanced regulation of economic law. The layout is formed with the coexistence of economic structural adjustment and the coexistence of policy and law. The proposition of dual adjustment is thus proposed.27 Moreover, when adjusting economic structure, effective regulation should be made on the distribution structure in particular. Distribution structure should be regulated before other types of structure in the larger economy can be well regulated. Therefore, the distribution structure, especially the dual regulation issue, should be focused on. This type of “Dual Regulation” can directly determine whether the income distribution of a country is fair or not and whether the economy could maintain a stable and growing trend. Therefore, it’s necessary to conduct comprehensive and systematic studies into the “dual adjustments”, especially from the perspective of economic law. In fact, both the general economic structure and the specific distribution structure rely on effective regulation by economic law. The relationship between policy regulation and legal regulation should be well coordinated to change the stereotype that the policies are focused on instead of law in reality. Therefore, the normal structure of economic law should be strengthened and the legislation structure should be regulated to enhance the rule of law level in the regulation of economic structure. Enhancing the distribution structure regulation and the level of the ruleof-law in the economic structure has been important propositions in the legal

Structure of co-integrating distribution 65 studies of economic laws. Adjusting the economic and distribution structure on a national level involves many rights and responsibilities. It is uniquely by introducing and emphasizing the adjustment of economic law that structural adjustment can be better justified, legitimate rights and interests of the relevant parties can be protected, steady economic growth can be achieved, public welfare and basic human rights can be secured and economic law adjustment goals can be achieved. 3.2.2   Structural regulation relies on effective  adjustment by economic laws Both the overall adjustment of economic structure and the specific adjustment of distribution structure depend on effective regulation by economic law. The intrinsic link between the two phenomena can be unveiled by analyzing the means. In general, the so-called economic structures which include industrial structure, investment structure, consumption structure, distribution structure and regional structure contain complicated relationships intertwined in fields including society, politics and law, which affect the stable development of the economy and society as well as the long-term peace and political stability of the country. Since the outbreak of the economic crisis in 2008, China has placed more emphasis on the adjustment of those structures, endeavouring to solve the problems of structural imbalances or uncoordinated development. For example, in terms of industrial structure, China has proposed a plan to adjust and rejuvenate “ten major industries”.28 In terms of the consumption structure, China has emphasized the need to increase the purchasing power of the people and to constantly expand domestic demand. In addition, many measures including “bringing home appliances to the countryside”29 have been implemented. In terms of distribution structure, we have taken various measures such as fiscal and taxation policies to solve the unbalanced distribution ratio among countries, enterprises and individuals, as well as among populations.30 In terms of geographic inequality, to tackle problems such as imbalanced development and the dual structure in urban and rural areas, some regulations have been issued to promote regional development,31 to name but a few. Many of the structural adjustment measures combine policies and legislation. Therefore, structural adjustment cannot be perceived as merely economic policy, but as part of written law. As a matter of fact, economic law regulations need to ensure substantive and procedural justice in structural adjustment and to protect legitimate rights and interests. Economic law acts on, and reacts to, the adjustment of the distribution structure providing it with legal guarantees. The distribution structure adjustment constitutes economic policy in nature whereas economic law belongs to legislation. Given that adjusting the distribution structure directly involves the rights and interests of all kinds of entities, the relationships between policies and laws need to be properly managed. That means comprehensive and effective adjustment of economic law is necessary.

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When adjusting the distribution structure, it’s necessary to modify the economic law system to satisfy the prerequisites and the institutional basis for the adjustment. This explains why all countries pay attention to the strengthening of structural legislation. At the same time, the “validity” of economic law adjustment must be kept in mind. Given that the purpose of adjusting the distribution structure is to prevent and resolve distribution crises, economic law adjustments must also comply with the “performance principle”. In other words, the goal of optimizing the distribution structure and ensuring structural adjustment is achieved is to promote sound economic operation and coordinated development. In addition, adjustments through economic law should be “regulatory”, that is, and it should be the combination of positive encouragement norms and negative restriction norms given the inherent consistency with policy manifested during adjustments to the economic and distribution structures. For example, each of the industrial structure adjustments can be mandatory or arbitrary, binding or guiding. Fully grasping the regulatory nature of economic law contributes to a better understanding and resolution of the issue of legalization of various structural adjustments. 3.2.3 Dual-adjustment problems In “dual adjustments”, there is a very prominent issue called “strengthening policy and weakening law”. The issue refers to the phenomenon that there is a heavy reliance on all kinds of economic policies (fiscal, financial, industrial, foreign trade) which concern the distribution structure. On the other hand, the corresponding legislation and law enforcement are lagging behind, resulting in a relatively low level of legalization of the distribution structure adjustment. As mentioned above, although the adjustment of the distribution structure is an economic issue, the adjustment of interests, rights, obligations and responsibilities of the relevant parties must be clarified according to the law. In particular, the powers of the government with regard to distribution adjustment ought to be limited by the law. Unfortunately, there is currently little or no legislation in certain areas meaning that policy plays a significantly dominant role. For example, with regard to the distribution structure, there is still a lack of comprehensive plans in China. In addition, the policies and legal norms on distribution have different objectives and are very fragmented. This has led to chaotic and unfair distribution. In fact, similar problems also exist in other structures whose changes also impact distribution. For instance, the current legislation governing the industrial structure, an important area, has not been appropriately designed. It mainly comprises of the state council’s laws and regulations and the guidance catalogue.32 In terms of the investment structure, the highest level of direct legislation is administrative regulations, while relevant substantial and procedural laws are rather deficient. Doubts expressed about the huge investment of RMB four trillion in 2008 reflect concerns people have, regarding insufficient or unlawful legislation in areas such as the budget law, the national debt law and the investment law.33 In terms of the consumption structure, issues relating to the

Structure of co-integrating distribution 67 spending capacity, consumption level and price index are all directly linked to the consumption structure adjustment. In addition, similar issues exist in the regional structure. For example, in order to solve the regional development imbalance, China has issued a series of “opinions” and related documents34 based on the differences among the eastern, western, central and north-eastern regions and the features of different economic zones. However, the adjustment of the regional structure has a far-reaching impact on the national economy, has been more affected by the policies and has received less scrutiny with regard to the rule of law. To sum up, economic measures and policies alone are insufficient to address the distribution structure adjustment and the overall economic structure. In addition, it is necessary to apply legislation, especially economic law. To raise the level of the rule of law in economic restructuring, it’s necessary to impose appropriate policies and laws, strengthen legislation and improve the levels and the quality of legislation. At the same time, law enforcement should be strengthened to render it effective. Enforcement is directly related to the adjustment of economic law itself. 3.2.4 “Dual adjustments” and the structural adjustment of economic law To solve the prominent problems arising from the “dual adjustments”, it is necessary to make some amends to economic law especially by amending its normative and legislative structures. The normative structure focuses on the internal constitution of economic law norms, including the main parties of economic law, the rights and obligations as well as the obligation and responsibility structures. The legislative structure, alternatively, focuses on the internal constitution of the legislative system of economic law, including the laws, regulations and rules which belong to economic law. The two structures are closely related to each other. The adjustment of the normative structure can be reflected in the legislative structure through the changes it brings about. Similarly, adjustments in the legislative structure will impact the structure of rights, obligations and responsibilities of the subjects. To this end, attention should be paid to the “dual structures” of the norm and legislation as adequate adjustments are undertaken. The sections that follow will focus on the normative structure of economic law. Adjusting the economic structure within the paradigm of the normative structure of economic law involves two parties: (1) the entity which rules economic structural adjustment, that is, the government and its functional departments; (2) the party who is under the influence of the adjustments, that is, the market participants. In different economic structures, in spite of the various combinations that may exist, the parties can be roughly divided into these two categories, otherwise considered as the “dual structures” of the subjects. Those parties are entangled in the complex structures of rights and obligations due to conflicts of interest in economic law and the allocation of numerous powers and rights. For example, the central government’s power to adjust its economic structure, an important macro-control power, has a direct impact on the overall

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economic operation and how the economic system is improved. Economic entities also enjoy specific rights in accordance with the law. These include investment rights, distribution rights and consumers’ rights, each of which is related to various economic structures. For instance, the investment right involves the amount of investment, investment area, investment scope, investment structure, industrial structure and regional structure; the distribution right refers to the expectation of the return on investment and the privilege to participate in income-sharing which is closely related to the distribution and consumption structures; the consumption rights include enterprise consumption rights and individual consumption rights, production consumption rights and living consumption rights. These structures are closely correlated. In conclusion, the structural adjustment or institutional arrangement in economic law can directly influence the arrangement as well as the structures of specific rights and obligations, thereby directly affecting economic adjustment. In fact, all specific economic structures including the industrial structure, investment structure, consumption structure and distribution structure correspond to a specific “normative structure”. Normally, the adjustment of the normative structure directly affects the adjustment of various economic structures, and to adjust the economic structure is to adjust the specific normative structure. For example, as a very important economic structure, the adjustment of the industrial structure involves institutional arrangements such as market access and exit, the qualifications of enterprises and their employees, investment rights and distribution rights of market participants. Given the connection between economics and law, the adjustment of the industrial structure has the potential of altering the ownership structure which entails the proper allocation of various kinds of rights and powers. In fact, in the industrial restructuring process, the determination of market access and exit of different subjects in different industries belongs to the exercise of industrial control power. Sometimes, there could be conflicts between the regulation by authority and the ownership of the relevant market players. Therefore, it is necessary to specify investors considered qualified as well as the limits and boundaries of the regulatory power of the state in industries so as to effectively resolve issues related with the allocation of rights and powers and to form a rewarding structure. Both constitutional law and economic law may involve the protection of the property rights of market players and the exercise of power delegated to different levels of government as well as its functional departments.35 Resolving various structure-related problems and constantly improving economic law may enable the country to adopt far-reaching economic laws and regulations to achieve the goal of adjusting the economic structure. In the process of adjusting and fulfilling the structure of economic law, we must pay attention to the intrinsic links among various economic structures. For instance, the consumption structure includes issues like consumption capability (including production-consumption capability and living-consumption capability) and consuming rights.36 Meanwhile, in the entire distribution system, governments, enterprises, individuals and other entities, as well as their respective

Structure of co-integrating distribution 69 proportions, will lead to different consumption capabilities which are likely to affect the overall structure. The determination of the relative weights of public spending, the consumption of enterprises and households by a country has an impact on the investment and industrial structure. Therefore, the adjustment of the distribution structure can influence the other structures including investment, consumption and even the industry, thereby further affecting regional development and the entire economy. Internal relations among the various types of economic structures are the basis for exercising the macro-control power of economic law, for safeguarding many rights such as investment rights, consumer rights and distribution rights. Furthermore, the effective allocation of powers and rights will enhance the coordination of various structures and improve the internal structure of economic law. 3.2.5 Major economic law issues pertaining to dual adjustment The “dual adjustment” between the economic structure (or specific distribution structure) and the law and the adjustment undertaken within the economic law structure itself, aim to solve a series of important economic law issues. These include the system, the macro-control power and the allocation and protection of various interests and rights of market players, the institutional adjustment implementation and the coordination of various departmental laws and legislative structures in economic law. Further studies may shed more light on “strong policy and weak laws” during economic structural adjustments. From an institutional perspective, adjustment of the distribution structure and even that of the overall economy all relate to specific systems. For example, the adjustment of the distribution structure involves the overall distribution system, especially the fiscal and taxation system – while the adjustment of the industrial structure involves the planning system or specific industry management. The formation of the systems is directly related to economic law and given that all kinds of economic structural adjustments are subject to certain management systems, it’s necessary to start from adjustments and reforms in the management systems as well as the limitations of authority of the relevant economic laws. Directly related to the above issues is the authority in the economic structure or the specific distribution structure. We thoroughly investigate the entire legal or political system to determine which departments or institutions are delegated the power in particular fields, including adjusting the distribution or industrial structure. The institutions with the power to undertake adjustments are also embodied in the macro-control authority at the national level. These powers include the power of industrial regulation and distribution which appear to be less “macro” and more “comprehensive” when compared to the power of fiscal and taxation control and the power of financial regulation though it is more targeted on specific microeconomic activities than planning and control power. Governments should coordinate various macro-control powers – especially the power to undertake structural adjustment and the power to adjust the regional structure.

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In order to effectively limit the power of structural adjustment and fully protect the specific rights and interests of individuals and entities, it’s necessary to use various specific stipulations of economic law simultaneously so as to optimize economic structures. For example, when adjusting the distribution structure, it’s necessary to increase the proportion of middle-income earners and endeavour to form the “olive” shape (Keqiang Li 2011)37 income distribution structure so as to increase the proportion of resident income in the overall national income distribution, the proportion of labour remuneration in the primary distribution, the incomes of urban and rural residents and to ensure wages and salaries rise with economic growth. The income of subjects and their spending capacity as well as the income distribution system are included in the system, therefore, comprehensive adjustment is required through financial, tax banking, securities and social security laws. Adjustments by law can be observed in the concrete norms of economic law. For example, in response to the financial crisis, the “ten industries” were adjusted and rejuvenated, thereby setting out a series of important measures, including financial subsidies, export tax rebates and concessional loans. These specific measures involve distribution and are directly related to the adjustment of systems, structural adjustment and the specific rights of various subjects. Our discussion helps to further explain why the adjustment of economic law is vital to the economic structure (including the distribution structure) and why it is necessary to constantly promote the legalization of structural adjustment. In fact, the prominent distributional problems that exist in economic restructuring, such as illegal budget adjustment in fiscal and tax laws and inadequate transparency in fiscal revenue and expenditure,38 have a negative impact on the economy particularly distribution. The problems are motivated by the “policy first” notion as well as the absence of legality and procedural justice. Therefore, we still have a lot to do with regard to the long-standing “policy before law” conundrum. 3.2.6 Brief summary The adjustment of the economic structure (including the distribution structure) and economic law which entails the “dual adjustment” at different levels and of different natures with the former largely depending on the latter, is necessary for the sound operation of the economy. However, in the “dual adjustment” process in China, the “policy before the law” dilemma cannot be ignored due to the many negative effects on the adjustment of various concrete economic structures. Therefore, it is a perpetual and challenging task to constantly improve the distribution structure as well as the rule of law during economic restructuring. To ensure the effectiveness and legitimacy of economic restructuring, law-makers should reconsider economic law. Alternations in the normative or legislative structure of economic law may resolve the important issues while the effective improvement of economic law and the realization of economic restructuring could not be achieved without effectively executing the “dual adjustment” of economic law, and coordinating the “dual adjustment” of the policy and the law. Similarly, they

Structure of co-integrating distribution 71 are also essential to the rule of law in economic restructuring as well as the fairness and the legitimacy of structural adjustment. The principles also govern the adjustment carried out in the economic structure when solving the issues of distribution. The adjustment could be understood from different perspectives. Firstly, it could be interpreted as the most fundamental and meaning adjustment to economic law and to the economic structure. Secondly, it refers to the coordination of policy and law to strengthen the significance of legal adjustment. Thirdly, to resolve the “abuse of policy and absence of law” dilemma, it is necessary to improve the structure of economic law by adjusting the normative and legislative structure of economic law from content to form, that is the third level of dual adjustments. Given the close association of the first three aspects of “dual adjustments”, special attention should be paid to the coordination of the three aspects. The rationality of the internal structure needs to be observed from a systematic and global perspective in the distribution and the overall economic structure. When determining whether a certain structure is reasonable, it is indispensable to use the structural analysis pertinent to the distribution problem and economic law research (Quanxing Wang & Ping He 2008).39 In addition, the importance of structural analysis partly relies on its connection with the principles (Zhang 2013)40 of economic law. The differences among the capabilities (such as distribution ability), rights and scales have a direct impact on the balance and optimization of the economic structure. An effective structural analysis based on the prevailing differences in realities and the resulting structural imbalances is efficient in the all-round resolution of distribution structure-related issues.

3.3 Promoting and regulating the norms in economic law The reasons why economic law helps to solve the distribution problem, such as distribution pressure and differences, and promote the effective adjustment of the distribution structure lies in its special structure and its prominent regulations which combine positive encouragement and negative prohibition, thereby contributing to solving the distribution problem from these two aspects. Compared with restrictive stipulations, encouraging stipulations in economic law may have a greater impact. Next, we will discuss the relevant issues and highlight the role of economic law in crisis management. 3.3.1 Background of the promoting norms in economic law China’s reform and “opening” has brought about remarkable change in the economy and society, as well as in economic law41 which has effectively promoted rapid economic and social development through the adjustment of complicated distribution relationships. As a matter of fact, the goal of “promoting development” is endogenous in the normative structure and legal function of economic law.

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As to the purposes and means, economic law speculations can be divided into two categories. While some are intended to restrict or prohibit certain activities, others encourage or promote them by their very nature. The traditional preference for “prohibiting norms” has led to relatively insufficient research about the promoting norms. Since China’s reform and “opening”, the promoting norms of economic law have played a crucial role in effectively solving distribution problems and managing the distribution risks and crises. The study on promoting norms intends to underscore the many differences among economic law and other traditional laws in order to reveal the important function of economic law in settling distribution problems, to promote economic and social development, and to clarify the importance of economic law itself, thus promoting theoretical development and system improvement. Given the role of economic law in resolving distribution issues,42 the academic community needs to further study how to use the economic law system to solve the issues of market failure including unfairness and to promote economic and social development which is an important task for both theoretical research and system construction. Consequently, this book intends to define the promoting norms of economic law, to analyze its main types as well as the legislative practice in China so as to further explore the effect of promoting norms on both distribution and socioeconomic development. 3.3.2 The rationale behind the promoting norms “Promoting norms” refer to the branches of economic law that are intended to solve distribution problems and to promote economic and social development by encouraging statutes. Promoting norms are influenced by the features, structural functions and system principles of economic law. Therefore, this part determines the rationale behind this function. Firstly, compared to other legal branches, economic law is more closely related to economics and administrative regulation. Economic law stems from the legalization of multiple economic policies and corresponding economic instruments. Economic law combines positive encouragement and promotion, together with negative restrictions and prohibitions. Moreover, promoting norms serve as an important way of enhancing both fair distribution and economic and social development. A multitude of promoting norms often inherently guarantee development. Economic law, as modern law for promoting development, has an outstanding feature of policy and is an important tool for the state to promote fair distribution and economic and social development. Secondly, judging from the structural function, the theme of contemporary society is the development of economy, society, politics and law. These are areas around which development-based researches have concentrated (Shouwen Zhang 2005).43 Law, including economic law, must back social development. Therefore, promoting norms in economic law is necessary so as to guarantee the fair distribution of social resources and promote economic and social development.

Structure of co-integrating distribution 73 To reach the goals above, a specific normative structure is a must for economic law because of the causation between structure and function. And promoting norms formed within economic law contribute to enhancing fair distribution and economic and social development. Moreover, the norms are mainly shown as a large number of encouraging norms of the economic law which contribute to guaranteeing fair distribution as well as promoting economic and social development. Thirdly, from the perspective of the system design, to reach a promoting function, the spirit of “promotion” must be reflected in the objectives, basic principles, subject structureand arrangements of rights and interests in economic law. Therefore, the spirit of fair distribution and economic and social development should be embodied in the purpose of economic law. Values – including moderation, fairness and efficiency – should be reflected in the principles of economic law and other legal branches. Measures of antitrust, anti-unfair competition which focus on promoting fair distribution and economic and social development should be included in the overall or specific fiscal taxation regulations with a view to promoting fair distribution and economic and social development. The analysis shows that the promoting norms of economic law are consistent with the regulatory features of economic law and fully reflect the regulatory function. At the same time, the promoting norms rely on specific structures of economic law including the composition of promoting norms and restrictive norms, as well as the specific subject structure, power structure, responsibility structure and modulation structure which determine the specific function of economic law in promoting fair distribution and economic and social development. Thus, from the perspective of system design, the philosophy and spirit of promotion should be integrated into the entire system. 3.3.3   The specific categories of the promoting norms The primary goal of promoting norms is to guarantee fair distribution, achieve distribution justice and promote economic and social development (Rawls 1988).44 However, the term “promoting” indicates activism with both incentive measures and negative promotion or restrictive measures. In general, more attention should be paid to positive measures when studying economic law promotion norms. In addition, the promoting norms can also be divided into direct promoting norms and indirect promoting norms; respective promoting norms and overall promoting norms. There are norms which aim at certain types of individuals, and industries which are often regarded as direct and individual norms. Furthermore, some norms aim at macroeconomics and social development as a whole. These norms, which belong to a higher level, are usually considered as indirect or overall norms due to the fact that they are derived from direct, individual norms. In addition, promoting norms can be divided into the categories of general or specialized, according to related legislation. Promoting norms are usually either general or belong to various legal branches including fiscal law, tax law, financial law, competition law and industrial law. There is also specialized legislation directed towards a specific area. This legislation is centralized, specific and

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focused on an industry, region or association. All promoting legislation is directly or indirectly connected with the solution to distribution problems. Thus, when promoting economic law, equal attention should be given to both special and general legislation. In general, legislature based on the principle of “different treatment”, solves the problem of distribution imbalance in the development of industries, regions and enterprises and guarantees fairness and overall efficiency by providing support to certain industries, regions and enterprises. The promotion of industrial development includes the promotion of various sectors: agriculture, automobile, tertiary, transportation and husbandry. The promotion of regional development includes the development of large regions such as the western, northeast and central regions as well as the special regions such as coastal areas, economic and technological development zones, former revolutionary bases, areas inhabited by ethnic minority groups, remote and border areas and poverty-stricken areas. Enterprises including small and medium-sized, state- and private-owned, as well as those located in townships and villages, are equally promoted. It is worthy to note the close-knit promotion of industries, regions and enterprises. For example, industrial promotion directly affects enterprises in the industrial area and the promotion of the area directly affects related industries and enterprises in the area etc. In fact, these types of promoting norms enhance the resolution of issues of “urban-rural structures” “eastern and western structures”, and “large and small structures”,45 from different angles and the resulting imbalances, corresponding economic efficiency, fair distribution and other related issues. Various promotion means are crucial when it comes to the promoting norms of economic law. These means are usually various legalized economic policy instruments including fiscal and taxation, finance, competition, industry and foreign trade. A variety of legal means are at the core of promoting norms through which we can not only study the specific path to the distribution problem from different aspects but also conduct a “coherent study” on the various sectorial laws of economic law in order to determine and refine similarities among promoting norms. The promotion means are mainly stipulated in various kinds of incentive concessions and are directly associated with the solution to distribution problems. Among these are institutional concessions including fiscal concession (i.e. fiscal subsidies and special transferring payment), tax concessions, financial concession (i.e. the low-interest loans system), competitive concession (like the exception system) and industrial preferential system (i.e. the investment incentives)are vital to the distribution of interests among relevant participants and to the resolution of distribution-related issues. In fact, China’s reform and opening-up is closely linked to the distribution of benefits and the implementation of a large number of promoting measures. Without the effective promotion of multiple means, it may be impossible to ensure sound macro-control and market regulation, to effectively solve distribution problems, and to guarantee rapid economic and social development. Economic reform started with the permission to “production to households” and continued with the decentralization of power, the transfer of profits to enterprises, the return of wealth to the people as a means of realizing common

Structure of co-integrating distribution 75 prosperity and, in an all-round way, to build a well-off society. The entire process and the goals of reform are directly linked to issues of distribution. 3.3.4 Legislative practice of promoting norms in economic law 3.3.4.1 Decentralized and centralized legislation China’s promoting norms are mainly reflected in economic and social law, both of which are directly related to the adjustment of distribution relationships. Since the reform and “opening” of China, the promoting norms of economic law have experienced rapid growth. Attention has also been inverted from the decentralized to the centralized model which promoting norms in fiscal and taxation law, financial law, planning law and competition law, as well as some low-level laws or regulations, simply labelled as “promoting”. Currently, the laws and regulations which are labelled “promoting” include Law of the People’s Republic of China on Promotion of Small and Medium-sized Enterprises; Law of the People’s Republic of China on Promotion of Agricultural Mechanization; Law of the People’s Republic of China on Promotion of Employment Promotion; Law of the People’s Republic of China on Promotion of Private Education (2013 Amendment); Law of the People’s Republic of China on Promotion of Cleaner Production (revised in 2012); and Law of the People’s Republic of China on Promotion of Circular Economy.46 These laws include many promoting norms that help to skew/tilt the allocation of relevant resources to areas in need. For example, the Law of the People’s Republic of China on the Promotion of Agricultural Mechanization stipulates that: People’s governments at or above the county level shall incorporate the promotion of agricultural mechanization into the national economic and social development plans and gradually increase capital investment in agricultural mechanization based on financial support and preferential taxation policies… so as to promote the development of agricultural mechanization. This law involves the planning law, financial/fiscal law, tax law, fiscal/financial law and several other laws. At the same time, Chapter VI of Law of the People’s Republic of China on Promotion of Agricultural Mechanization provides various support and incentives such as financial subsidies, preferential tax treatment and discount loans to achieve a “lean distribution” off/on agriculture. In addition to the general provisions, there are also special provisions in fiscal law, financial law, planning law and other department laws including measures of “support”, “encouragement” and “reward” which are aimed at making specific stipulations on tilt distribution, which are directly related to the distribution of the interests of relevant subjects and which contribute to fair distribution as well as economic and social development. In addition to the laws, there are a large number of normative documents equivalent to administrative law which contain considerable promoting norms. Since

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the reform and opening up, the state council has promulgated many laws and regulations containing promoting norms in the areas of finance, taxation, banking, industry and competition. For example, the normative documents directly promulgated or forwarded by the state council that contain the words “promotion” are over 80. Most documents are directly connected to economic and social development and involve the “promotion” of various industries, regions and markets. Those documents are mainly related to industries, enterprises, regions, markets, foreign trade and prices. Among them, the normative documents aimed at promoting industrial development are predominant and are directed towards industries including automobile, steel, fodder, agricultural product processing, coal, circulation, husbandry, dairy and real estate.47 These industries are critical to the national economy and the people’s livelihood. However, some of them are relatively weak and need to be effectively promoted through legalized economic means. This partially explains why the State Council has formulated the Interim Provisions on Promoting Industrial Structure Adjustment aimed at directly or indirectly resolving distribution problems. In addition, normative documents pertaining to regions include the development of the western regions, the rejuvenation of the northeast region and the rise of the central region.48 These regions have a direct bearing on resources and profit distribution among the different regions. Some important markets which have a great impact on the national economy and the people’s livelihood, such as the real estate and capital markets directly affect the income distribution of related parties and require steady and healthy development.49 3.3.4.2 Characteristics of legislation periods Marked by the establishment of a market economy system in 1992, the development of China’s economic law since 1978 can be divided into two phases. In the first phase, economic law was far from flawless given that it was influenced by many factors, some of which included reforms and a deficient economic and legal system. In fact, the function and goals of economic law were unclear and legislation intended to promote economic law was decentralized. Judging from the release date of the relevant legislation, all laws that have “promotion” as part of the title were introduced after the establishment of the market economy or in the 21st century. For example, the normative documents promulgated by the State Council were mostly released after the implementation of the market economic system. This shows that before the market system was implemented, the centralized or comprehensive legislation of promoting norms was insufficient. At the same time, it also shows that the more the market economy is pushed forward, the more comprehensive promotion norms are needed. The promotion is based mainly on interest redistribution, in particular, government revenue transfer. In fact, the strategy to “decentralize power and profit sharing”, constitutes a major part of the adjustment of benefit and is very important to the legislation to promote norms in different periods. Whether the incentives of financial/fiscal subsidies or tax, discount loans, etc., are directly related to the transfer

Structure of co-integrating distribution 77 of government revenues and interests. In fact, the government promotes overall economic and social development as well as the stable and healthy development of important areas by adjusting unfair redistribution. This measure allows for the realization of substantive equity, safeguards overall social and public interests and promotes the healthy and coordinated development of both the economy and society. Although there were few specialized promoting norms before the establishment of a market economy in China, it’s necessary to understand them from a broad view. In fact, at the initial stage of China’s reform and opening up, there existed many substantive norms of economic law in the form of policies even though, at the time, few norms of economic law existed.50 Those systems that came into actual effect reflect the purpose and spirit of economic law, which, in the broad sense, embody economic law. For example, there were institutional arrangements which showed the spirit of promotion in the early stage of economic law. The household responsibility system prescribes that agricultural households could retain part of their production after submitting a certain proportion to the government and the collective organization. This was in accordance with the laws51 which had a direct influence on the income of the people. As a broad fiscal and taxation arrangement, the institution of remuneration linked to output greatly mobilized the enthusiasm of farmers and led to the initial success of the rural reform. Similarly, in the process of urban enterprise reform, the institutional arrangement to “replace profit delivery by taxes” constitutes an important incentive for enterprises and individuals. In fact, it is the form of income distribution which gave birth to the autonomy of market players (including the subjects/entities of economic law). This is not an arrangement in civil or administrative law but an obscure economic law that renders the economy of the entire country more reasonable that reduces the transaction costs among various types of entities and that improves the overall social welfare. It should be noted that these are all various functions of promoting norms. 3.3.5 Brief summary Promoting norms are vital in addressing distribution problems. As an important part of overall economic law, distribution problems are directly related to the characteristics of economic law, the functional structure, and the design principles. The “promotion” in the promoting norms means a wide range of categories of promotion including direct and indirect promotion, individual and overall promotion, general and specific promotion, all of which involve the distribution of benefits. Although the centralized legislation of promoting norms was relatively inadequate in the first decade or so of China’s reform and opening up, the decentralized legislation and the institutional arrangements that are substantively significant in promoting norms should still not be overlooked. For example, measures or policies like “Household responsibility system”, “replacing profit delivery by taxes” and “tax reform” mean a lot to China’s reform and opening-up and are worthy of further exploration.

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The promotion/promoting norms of economic law act as an important way of coordinating and adjusting the distribution structure, resolving distribution problems, preventing distribution risks and crises. Therefore, various kinds of distribution issues can be resolved by studying the promotion-oriented economic law, strengthening economic law regulation and continuously improving the level of the rule of law.

Notes 1 In ancient China, the idea of “harmony between man and nature” emphasizes the coordination between man and nature. See Keli Fang. (2003). “Harmony between Man and Nature” and Ecological in Ancient China. Social Science Front (5), pp. 94–103. 2 The basic meaning of “Xie Tiao” is usually understood as “coordination, harmony, and marching together”. If the state of coordination is not reached, adjustments should be made so as to “make it fit”. 3 For further information to understand national coordination, consult: Zixuan Yang. (2009). Theory of the State Coordinating. Beijing: Peking University Press, p.127. 4 Each and every branch of economic law has distributive effects, making the system a major coordinator in distribution relationships. 5 Redistributive policies should be based on the budget, transparent taxation and transfer methods. See Kasper, W. and Streit, M. (2008). Institutional Economics: Social Order and Public Policy. Translated from German by Chaohua Han. Beijing: the Commercial Press, p. 373. 6 See Baoshu Wang, ed. (2004) The Theory of Economic law. Beijing: China Social Sciences Publishing House, p. 38. 7 The “Reform Decision “of 2013 clearly proposed to implement the statutory principle of tax revenue，a special emphasis on the statutory principle of the allocation field. See Shouwen Zhang. (2014). Statutory Principle of Taxation should be a Priority in Rule of Law. Global Law Review, 36(01), pp. 55–57. 8 See Zixuan Yang. (2009). Theory of the State Coordinating. Beijing: Peking University Press, pp.127. 9 According to Sima Qian’s theory of “good karma”, following the trend of distribution problems is a good way to resolve them. See Shouwen Zhang. (2014). Legal Adjustments to the Relation Between Government and Market, China Legal Science, (5), pp.60–74. 10 After the outbreak of the global financial crisis of 2008, countries have stepped up macroeconomic regulation and market supervision thereby reflecting the crucial role played by countries and governments as well as highlighting the relevance of economic law. See Shouwen Zhang. (2009). Analysis to the Financial Crisis from the Perspective of Economic Law. Legal Forum, 24(3), pp. 71–78. 11 See Zixuan Yang. (2009). Theory of the State Coordinating. Beijing: Peking University Press, pp. 361–362. 12 Many scholars have paid attention to the method of systematic analysis in their works. See Ruifu Liu. (2000). The Theory of Economic law. Beijing: Peking University Press, pp. 21, 24–25. 13 This contradiction, as the basic contradiction of economic law, is embodied in various fields of economic law which helps to understand why it is necessary to combine the “visible hand” and the “invisible hand” when coordinating distribution relationship. See Kimsawa Ryu. (2005). An Introduction to Economic Law. Translated from Japanese by Man Daren. Beijing: China Legal Publishing House, p. 27.

Structure of co-integrating distribution 79 14 Besides cyclical factors that caused the 2008 financial crisis, were structural factors which particularly caused unfair income distribution by relatively distorting prices. See Shuguang Zhang. (2010). Challenges Brought by the International Financial Crisis Facing Microeconomics. In Jianming Wang ed. Business Cycle and Constitutional Order. Hangzhou: Zhejiang University Press, p. 17. 15 On February 3, 2013, the State Council approved the document, Opinions on Deepening the Reform of the Income Distribution System raised by the National Development and Reform Commission, the Ministry of Finance, and the Ministry of Human Resources and Social Security in which it clarified the four major goals of the income distribution system reform. It goals envisaged the doubling of the income between urban and rural residents by 2020, the narrowing of the income distribution gap, the significant improvement of the income distribution order, and the improvement of income distribution pattern. 16 Consistent with this, the “Reform Decision” of 2013 also specifically intended to “standardize the income distribution order, improve the mechanism and policy system of income distribution regulation and control, establish a personal income and property information system, protect legitimate income, regulate excessively high income, regulate implicit income, eliminate illegal income, increase the income of low-income people, increase the proportion of middle-income people, strive to narrow the income gap between urban and rural areas, regions, and industries, and gradually form an olive distribution pattern”. 17 In this regard, the “Reform Decision” in 2013 also has the same statement. 18 This multiplication plan is very important. If the per capita real income of urban and rural residents can be doubled by 2020 instead of 2010, then the income growth of middle and low-income people will be faster, people’s living standards will be raised in an all-round manner, and the distribution problem will be alleviated to some extent. 19 This law was approved by the 29th meeting of the Standing Committee of the 10th National People’s Congress on August 30, 2007 and came into force on January 1, 2008. 20 For example, in December 2013, the China Securities Regulatory Commission specifically formulated the Regulations on the Supervision of Listed Companies No. 3 – Cash Dividends for Listed Companies in order to further regulate the cash dividends of listed companies, increase cash dividend transparency, and earnestly safeguard the legitimate rights and interests of investors. 21 For example, the Circular on the Exemption of Certain Service Charges from Banking Financial Institutions issued by the China Banking Regulatory Commission, the People’s Bank of China, and the National Development and Reform Commission (Yinjianfa [2011] No. 22) came into force in July 2011. 22 Multiple relevant acts had been taken. For example, State Administration of Taxation released Notice of the State Administration of Taxation on Implementing the Preferential Income Tax Policies for Small Low-Profit Enterprises on April 2, 2014. 23 There has been much debate on property tax reform. Some argued the failure experience should bring a conclusion to the reform. More recent documents in 2013 show policymakers preferred the term “Fang Di Chan” (tax on real estate and land usage) to “Fang Chan Shui” (tax on real estate), which may indicate a shift of emphasis. 24 In May 2014, following the approval of the State Council, a joint inter-ministerial meeting system was established to deepen reform of the income distribution system. The joint meeting consists of 21 departments and units including the National Development and Reform Commission whose responsibilities are to coordinate various tasks so as to deepen the reform of the income distribution system, undertake research to deepen the major issues regarding the income distribution system reform, and make overall income distribution plans to inform policies, industries and prices.

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25 In the 1970s, the economists of the Rome Club raised the issue of “the limit of growth”, which was not widely considered at the time. However, the large number of problems that exist today have led to the conclusion that this theory is perpetual and research on the feedback loop mechanism between population growth and capital growth is very meaningful. See Meadows, D., Randers, J., and Behrens, W. (2006). Limits to Growth: The 30 Year Update. Translated from English by Tao Li. Beijing: China Machine Press, pp. 43–46. 26 Many economists such as Feisha, Clark, Lyondorf, Kuznets, Rostow, Chanari, Lewis, and Timbern have done in-depth studies on the basic problems of economic restructuring. They have made significant contributions and their research provides important economic basics for exploring the legal issues concerned with economic restructuring. 27 Some economists once pointed out that China’s economic restructuring has entered a period of “double adjustments”, a combination of cyclical and structural adjustments. This book is more concerned with the “double adjustments” at both the economic and legal levels, as well as policy adjustments and legal adjustments. 28 At that time, China intensively introduced ten industrial restructuring and revitalization plans for the automotive, steel, textile, equipment manufacturing, shipbuilding, electronic information, petrochemical, light industry, non-ferrous metals and logistics industries, covering all major industrial sectors of China. The core of the numerous implementation rules and related policies supporting the “Top Ten Plans” mentioned above is to adjust the structure and change the mode of development. 29 For example, the policies of home appliances, agricultural machinery, automobile and motorcycle destined for the countryside, halving purchase tax for small-displacement passenger cars, and the policy of replacing old-fashioned home appliances and automobiles are all important measures that have caused widespread concern. 30 See the State Administration of Taxation’s Notice on Further Strengthening the Administration of Collection of Individual Income Taxes of High-income Persons (Guo Shui Fa [2010] No. 54); the Ministry of Finance and the State Administration of Taxation’s Notice on Adjusting the Business Tax Policy for the Transferring of Individual Housing (Financial Tax [2009]) No. 157). 31 See Some Opinions on Further Implementing the Revitalization Strategy of Northeastern China and Other Old Industrial Bases (Guofa [2009] No. 33), etc. 32 For example, the Interim Provisions for the Adjustment of Industrial Structure issued by the State Council in 2005, and the multiple-annual versions of the Industrial Development Guidance Catalogue approved by the State Council. 33 The huge budget expenditure involves budgetary adjustments which China has already stipulated clearly in the Budget Law. However, the State Council has not implemented the budgetary adjustment procedures and the National People’s Congress has not exercised its power to supervise the budget. This situation has aroused doubts in different quarters. 34 For instance, the State Council’s Some Opinions on Further Implementing the Revitalization Strategy of North-eastern China and Other Old Industrial Bases (Guofa [2009] No. 33), etc. 35 Professor North held that some mechanism should be designed to equilibrate the social and private return rates because once the ownership is not determined or implemented, there will be inconsistencies between them which will affect a country’s economic growth. This assertion is of great significance to the study of relationships between economic structural adjustment and legal structural adjustment, and to emphasize the protection of relevant subjects in the process of structural adjustment. See North, D. (1999). The Rise of The Western World: A New Economic History. Translated from English by Yining Li. Beijing: Huaxia Publishing House, p. 7. 36 To increase the consumption power of residents, , it’s necessary to adjust the national income distribution structure, raise the income level of low- and middle-income res-

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37 38

39 40 41 42

43 44

45

46

47 48 49 50

idents, emphasize the role of employment and labour remuneration in primary distribution, and focus on the role of social security and public services in secondary distribution which are also important problems when adjusting the national income distribution structure. See Keqiang Li. (2010). Few Issues regarding Economic Restructuring and Sustainable Development. Qiushi Jounal, (11), p. 3. During the revision of China’s Budget Law, the “openness and transparency” have always been emphasized and establishing a comprehensive, standardized, open and transparent budget system” is regarded as an important legislative objective of the revision of the “Budget Law”. In addition, not only do many important international organizations attach great importance to fiscal transparency, China also places special emphasis on the transparency of financial revenues and expenditures in institutional practice. See Ping Zhang. (2010). The Current Status, Gap and Improvement of China’s Public Financial Transparency Based on International Perspective. Research on Economics and Management, (09), pp. 64–69. See Quanxing Wang and Ping He. (2008). A Brief Discussion on the Structural Research Method in Economic Law Research. Journal of Chongqing University (Social Science Edition), 14(5), pp. 103–106. See Shouwen Zhang. (2013). General Theory of Economic Law. Beijing: Peking University Press, pp. 7–10. Regarding the origin of economic law, although there is lack of consensus among scholars, most of them believe that Chinese economic law developed in tandem with the reform and opening-up. The joint production contract responsibility system, “profit-and-tax reform”, “transferring and refinancing loans”, industrial and commercial taxation reforms, fiscal system reforms are all major institutional adjustments in the distribution field and play an important role in resolving the distribution problems of China. See Shouwen Zhang. (2005). The Development Law Science and Development of Law Science. Law Science Magazine, (3), pp. 3–7. Rawls believes that in order to justify the outcome, “it is necessary to limit social and economic processes within the scope of appropriate political and legislative systems”. See Rawls, J. (1988). A Theory of Justice. Translated from English by Huaihong He, et al. Beijing: China Social Sciences Publishing House, pp. 255–256.Therefore, promotion-type economic law legislation is very important for ensuring distribution justice which show outstanding policy or political nature. Not only is the problem of the dual urban-rural structure prominent in China, but also the problems of east-west dual structure in the eastern and the western regions, the “binary structure of large and small enterprises” in large enterprises and small and medium-sized enterprises are severe. These directly lead to many distribution problems which need to be resolved through economic regulation. There is also a law similar to the People’s Republic of China Law for Promoting the Transformation of Scientific and Technological Achievements (implemented on October 1, 1996). In terms of the name, it can also be called “the promotion of scientific and technological achievements”. See, among others, The Opinions on Promoting the Development of Health Services Industry of the State Council in 2013, and the Interim Provisions on Promoting Industrial Structure Adjustment of the State Council in 2005. For example, the State Council’s Several Opinions on Further Promoting Western Development (2004) and the General Office of the State Council’s Opinions on Promoting the North-eastern Old Industrial Base to Further Expand Openness (2005), etc. For example, the General Office of the State Council’s Circular on Promoting the Steady and Healthy Development of the Real Estate Market (2010). China’s economic law legislation in the early period of reform and “opening” was mainly embodied in the field of tax law. This situation has a direct relationship with

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the attempt by China to legally resolve the distributional relationship among the state, enterprises and individuals. At the same time, this was also a significant institutional basis for the reform and “opening”. 51 China has long implemented physical taxes in the field of agricultural taxation. The typical form of taxation is that which farmers need to “pay the grain” to the country. The joint production contract responsibility system not only reflects the distribution relationship between the state and the peasants but also constitutes a fiscal and taxation system arrangement.

4

Legal optimization of distribution structures

The discussions in the previous chapters indicate that the law is necessary for governments to coordinate distribution relationships, given that the law constitutes an important means of adjusting distribution structures and solving distribution problems; that the prevention and mitigation of distribution risks and crises depend on the regulation of economic law and the comprehensive rule of law. Particularly in view of the utilization of legal means to adjust distribution structures, this chapter will go on to discuss the legal optimization of distribution structures, i.e. improving distribution structures not only from a general legal adjustment perspective but also from the substantive optimization perspective with a view to efficiently solving distribution problems. Considering that the optimization of distribution structures relies on effective regulation of relevant laws (in particular, economic law that directly impacts distribution) and that distribution structures have important effects on distribution problems, this chapter begins with a discussion on the relationship between distribution structures, distribution systems and revenue distribution powers from the legal perspective. The approach intends to unravel the relationship between distribution structures and economic law adjustment, as well as the necessity and possibility of using economic law and other legal means to adjust distribution structures. We further discuss institutional causes of distribution structures and issues that arise thereof, functions and particularities of economic law and other legal systems in solving distribution problems and the impact of distribution rights or powers on distribution structures. The chapter concludes by examining distribution theories of economic law, in particular, theories related to distribution structure adjustment, and come up with measures for improving economic law and enhancing regulation against the background of the existing distribution structural imbalance, the increasing distribution gap and the distribution inequality problems in order to better protect various distribution rights, maintain the distribution order and realize distribution justice.1 It should be noted that this chapter focuses on the internal relationships of distribution structures, the adjustment of economic law to macro distribution systems and legal systems, and the influence of economic rights on the different types of distribution structures in economic law, in order to find the scope of economic law, its limits, its limitations and its relationship with other relevant legal

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adjustments. We intend to reveal the complexity of the adjustment of distribution structures as well as the necessity of economic law adjustment. Finally, it is our intention to illustrate how the optimization of distribution structures should be promoted through the adjustment of specific systems in economic law.

4.1 Necessity and relevance of structural optimization 4.1.1 Why are distribution structures optimized? Since ancient times, distribution has always been related to the national economy and people’s livelihood. Distribution has also involved many areas including the economy, society, politics and law. It has a bearing not only on political stability, economic growth, social development and cultural prosperity but also on national wealth accumulation and basic human rights protection. Distribution problems, including misallocation or unbalanced distribution, have been at the origin of many disputes, institutional evolutions and regime change over the years in ancient and modern China as well in foreign countries.2 Therefore, great attention needs to be paid in seeking solutions to distribution problems. The reform and opening-up of China and rapid economic growth have contributed to the swift expansion of economic aggregates and social wealth. However, for many reasons, distribution problems, such as excessive distribution gaps, unfair distribution and unbalanced distribution have become increasingly prominent. The dramatic increase in inequality has affected economic development, social solidarity and social harmony,3 creating an urgent need for appropriate adjustments to the economic base and superstructure. As mentioned earlier, the realistic need to solve the revenue distribution problems was the direct reason for the reform and “opening-up” of China.4 Therefore, seeking a long-term solution to distribution problems remains a major issue that China must focus on. It is also the mission of China’s reform and “opening”. The above allocation problems are directly linked with unreasonable distribution structures. The distribution structures have been very instrumental in influencing distribution functions in the distribution systems of various countries over different historical periods. Therefore, in order to solve all distribution problems, effective adjustments need to be made to distribution structures. Only in this way can distributional imbalance be prevented and “partitioning and contention” effectively realized as a way of achieving national and public security. From the perspectives of development economics, development sociology and development politics, China’s economic and social development has now reached a critical stage. With the acceleration of industrialization, urbanization, marketization, informatization and internationalization, a “dual structure” has emerged in various forms and distribution imbalance has become increasingly severe leading to severe distribution problems. In order to circumvent the so-called “middleincome trap”5 that many countries have not succeeded in avoiding, alleviate various types of social conflicts and resolve social disputes to ensure stable economic growth as well as social and political stability, it is necessary to effectively adjust

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distribution structures, legally regulate distribution activities and maintain distribution order. At the same time, with respect to various development-related distribution problems, further study on “developmental jurisprudence” (Shouwen Zhang 2005)6 is necessary. How distribution structures are developed and adjusted is subject to specific distribution systems. Care must be taken in designing distribution systems given that their merits and demerits directly affect distribution equity, bear on distribution justice and are related to the rule of law. As long as distribution systems are included, whether that includes constitutional law or other laws, distribution powers and rights need to be efficiently defined among the relevant entities and distribution structures should be effectively adjusted to ensure they are rational and legitimate in order to solve the various distribution problems arising in the course of economic and social development. As the framework and concept of “development law” suggest, distribution structural adjustment relies on effective legal adjustment, whether such adjustment relates to wealth, income or related resources, power or interests. Of all legal means, economic law and specific fiscal and taxation laws serve as “weapons for the separation of wealth”. As typical “distribution laws”, their adjustment is of farreaching importance. To optimize distribution structures, various laws – especially economic adjustment laws or specific fiscal and tax laws – need to be optimized. Strengthening the adjustment of economic law or relevant laws with the purpose of promoting the optimization of distribution structures is also closely related to the macro background of changing the economic development model. At present, China has shifted its focus from “economic growth” to “economic development”;7 emphasizing the quality and efficiency of economic development, as well as the importance of social distribution and social equity. As mentioned above, changing the economic development mode requires adjustment to a variety of structures, including distribution structures. Economists have discussed this issue for a while, but research in legal academia is still lacking. We think it is necessary to explore the use of legal adjustment to optimize distribution structures from the legal perspective. In fact, the large number of real-life distribution issues have led to complicated economic, social and even political problems. Improper, uneven and inequitable distribution is due to imbalances in distribution structures. To achieve a relatively balanced distribution, structures must be adjusted. On the other hand, distribution structures themselves are also an important part of the economic and social structure. As the systems theory and structural functionalism research indicate, a system’s structure determines its function and a sound structure produces positive function.8 Only by constantly optimizing the distribution structures can economic and social systems become balanced and reasonable. 4.1.2 The legal relevance of the optimization of distribution structures The optimization of distribution structures, in particular the specific distribution systems and the relevant distribution powers, pertains directly to legal adjustment.

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To this end, it is necessary to explore the close relationship between distribution structures and distribution systems in order to clarify the influence of distribution systems on distribution structures. It is also necessary to further clarify the impact of the powers of revenue distribution allocation on distribution structures. These two aspects are discussed separately as follows. 4.1.2.1 The internal relevance of distribution structures and distribution systems Within a country’s distribution systems, distribution structures determine distribution functions. To achieve the positive function of distribution, it is necessary to formulate effective distribution systems that allow for “normal distribution” and distribution equilibrium by adjustments to various distribution structures. In recent years, China’s macroeconomic distribution structure has attracted significant attention. For example, since the reform and opening-up, there has been a clear trend in the share of revenue of governments, enterprises and individuals. Speaking generally, from 1978 to 1995 when the “More Self-determination and More Yield” (Jian Zheng Rang Li) policy was implemented, the proportion of national fiscal revenue in the entire revenue distribution systems declined, and the proportion of the personal income of residents increased. However, since 1996, the proportion of revenue for governments and corporate bodies has increased while that of residents has decreased. As a result, the trajectory of change in the proportion of national fiscal revenue appears as a “U-curve”, while personal income changes for residents are represented by an “inverted U-curve”,9 a notable phenomenon in Chinese macro-economy calling for attention. In view of the rapid growth of national fiscal revenue and corporate profits, and the slow growth of personal income, it is necessary to use legal means to adjust the unreasonable distribution structures, increase the proportion of residents’ personal income and enhance the distribution rights and consumption capabilities of residents in order to solve the unbalanced distribution structures problem. In addition, the urban-rural, industrial and regional structures are also related to specific legal systems. It is precisely the arrangements in various specific legal systems that directly affect the formation of various specific distribution structures. The influence of legal systems on various types of specific distribution structures should be the starting point and prerequisite for studying economic law and related legal adjustment issues. Clarifying the direct influence of the legal systems on distribution structures will be helpful in analyzing the necessity and feasibility of legal adjustment. In fact, the various legal systems involved in the distribution of financial resources (including distribution among individual income, corporate profit, and national fiscal revenue) constitute various distribution systems for private and public goods and have a direct impact on various types of distribution structures. Meanwhile, where “nature–man dualism” “resources limitation” and “stakeholders” are commonplace, distribution (considered an important issue that runs through many economic and social fields)10 and distribution relationships(viewed as the basic economic or social

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relationship) significantly impact the legal and other superstructures which, in turn, affect the formation of various types of specific distribution systems. How best to settle disputes is a very important function of law. The various legislations in different jurisdictions have shown that distribution systems usually focus on the subjects, objects, time and space, rights and methods of distribution, thus forming subjects, objects, time and space rights and other distribution structures which directly affect distribution results and assess whether distribution is improper or unbalanced, as well as the potential for distribution to lead to other types of problems. For example, from the structure perspective of the subject in a distribution structure consisting of “labourers” and “owners of capital and other factors”,11 the decline in the income distribution ability of labourers on one side, and the increase in the distribution ability of the owners on the other side, has widened the distribution gap of distribution subjects; in the distribution structure consisting of rural residents and urban residents, a decline in the income of residents in rural areas may directly lead to excessive urban-rural gaps. These differences in distribution among different subjects directly lead to problems of excessive distribution gaps and imbalances which require resolution by adjusting distribution systems. In addition, the structure of the above-mentioned subjects is also closely related to geographical structure. Subjects with different distribution capabilities are very unevenly distributed in space thereby forming a geographical distribution gap, e.g. the North versus South gap on the international front, the east versus central and west gap in China, as well as the aforementioned urban versus rural divide.12 From the objects’ structure perspective, the unbalanced distribution of wealth, income and resources in different industries and fields has also created a gap in corresponding industries or fields. The cause of such gaps can be ultimately traced to distribution systems. In summary, an internal connection exists between distribution structures and distribution systems. On the one hand, distribution systems determine the formation of distribution structures; on the other hand, distribution structures are a realistic reflection of distribution systems. As an important component of the distribution system, economic law significantly influences the formation of various types of distribution structure. Therefore, the adjustment of distribution structures cannot be separated from the regulation of economic law. 4.1.2.2 The allocation of revenue distribution rights is key to the adjustment of distribution structures Various distribution problems that are caused by unreasonable distribution structures call for the adjustment of distribution structures; from the legal perspective, the cause for distribution problems is mainly the unreasonable allocation of revenue distribution rights. Therefore, the key to the adjustment of the distribution structures is to change the allocation of revenue distribution rights. Revenue distribution rights, often simplified as revenue rights or distribution rights, are the rights of relevant subjects to receive revenue based on certain rights

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or powers. It is an important category that calls for special attention. As a right that directly affects the survival and development of relevant subjects, it has an influence on individual human rights, on corporations (especially how they operate), on NGO stability and functioning and on the normal state operation and efficient supply of public goods. Therefore, different entities in the distribution systems have the right to distribute revenue, and the allocation of revenue distribution rights directly affects the rationality of distribution structures and the fairness of the distribution process from start to finish. In reality, nationals enjoy revenue distribution rights based on various rights including labour, equity, credit and intellectual property, while the government enjoys the revenue distribution power based on various powers including taxation, fee collection and state ownership. This is what is known as the government versus nationals binary structure. However, the power of the government and the rights of nationals are not of the same nature and cannot be seen as equal. The disequilibrium with regard to revenue distribution rights or powers leads to differences in distribution ability of relevant subjects and furthers distribution results which lead to problems including distribution gaps, unfair distribution, and unbalanced distribution structures. To solve such distribution problems, it is necessary to optimize distribution structures and change the allocation of distribution rights or powers from a legal perspective in order to render distribution systems more reasonable. For example, it may be desirable to recognize some reasonable distribution gaps so as to encourage competition and seek efficiency in the market economy. However, in order to not materially impede economic development and to destroy social stability, the distribution gaps must be moderate and reasonable. In China, due to the fact that the income of farmers and workers is generally low, the revenue distribution gap between different groups is becoming substantially large, and the Gini Coefficient has continued to rise.13 This phenomenon had considerably dampened domestic demand. Attempts by the government to introduce measures including public investment over the years to stimulate domestic demand have failed to produce the desired results. Following the 2008 financial crisis, in the face of a dramatic drop in external demand and sluggish exports, China also launched numerous measures such as large-scale public investments, structural tax cuts and “home appliances to the countryside” policy to expand the domestic market, especially the rural market. At the same time, the principle of “increasing low-income groups, expanding the middle-income group, and restricting the expansion of the high-income group” was established as a way of reforming the revenue distribution system. The principle also intended to narrow the revenue distribution gap and improve the consumption ability of residents. To achieve the goal of narrowing the income gap, it is necessary to change the current allocation of revenue distribution rights or powers through various laws so as to achieve common prosperity. Efforts should also be made to address the issue of unfair distribution. Respect for labour, equitable distribution and fair distribution14 are important for all countries. If monopolies, resource endowments and other non-market factors exist,

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there will undoubtedly be distribution gaps in different industries and regions. In fact, initial distribution is conducted in accordance with general market principles and does not fully represent fair value given that there is great market failure in fair distribution. This is also why the Chinese government began to stress the importance of fairness in initial distribution.15 Furthermore, from the distribution system perspective, if “rich country and rich people” or “rich people and strong country” is the ideal rule,16 structural imbalances will occur in the current distribution system: the government’s fiscal revenue has witnessed excessive growth for many years while the income of residents has seen slow increases over the same period; the proportion of the salary of residents in the initial distribution has continued to decline. The unbalanced distribution structure not only impedes the development of the private economy but also affects the sustainability of the public economy. Therefore, it’s key to adjust the imbalanced distribution structure. To solve distribution problems, particularly the issues of excessively large distribution gaps and unfair distribution, and to adjust unbalanced distribution structures, it is necessary to change the allocation of existing revenue distribution rights as well as the comprehensive coordination of relevant systems. Regulating economic law can be of crucial importance in such a change. This would mean putting different emphasis on different revenue distribution rights and adjusting distribution outcomes for different subjects.17 In addition, given that the economic regulation system, as well as other legal departments, have an influence on the distribution structure, a comprehensive perspective shall be taken when researching for the optimization of the structure. This may contribute to the discovery of the intrinsic connections between different mechanism and the specialities of the economic law. All legal branches must collaborate to reach the common goal of optimized policy. The correlation between legal systems and other legal adjustments reveals the particular nature of economic law regulation and explains the necessity of coordinated and complementary economic law, other laws and comprehensive adjustments.

4.2 Diversified legal adjustment of distribution structures As mentioned above, the relationship between distribution structures and distribution systems calls for the adjustment of distribution structures, the optimization of distribution systems and the allocation of distribution rights from a legal perspective. This chapter discusses specific distribution systems and diversified legal adjustments of the distribution structures as it reveals the particularity of economic law’s regulation. Considering that there are various distribution structures and that people usually pay attention to initial distribution and redistribution (in a few cases, the “third distribution” [Yining Li 1994]18 as well), we will discuss distribution structures as a result of initial distribution and redistribution. This way, we reveal the importance of traditional laws such as constitutional laws and civil and commercial

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laws with regard to initial distribution and the importance of modern laws such as economic laws and social laws on redistribution. Then we explore the particularity as well as the scope of fiscal law regulation. 4.2.1 Initial distribution and traditional legal adjustment of distribution structures In light of the importance of distribution systems, Article 6 of China’s Constitution specifically stipulates that the basic principles for distribution in China are “from each according to his ability, to each according to his work” and “a distribution system in which distribution according to work is dominant and diverse modes of distribution coexist”. Correspondently, the constitution also stipulates that “the State upholds the basic economic system in which public ownership is dominant and diverse forms of ownership develop side by side”. Since the forms of ownership and the distribution of products are important parts of the production relationship, they had a relatively strong correspondence and consistency in the period after the introduction of the 1982 Constitution. However, with the deepening of reform and the “opening” of China, and with the development of the market economy, the correspondence between the dominant position of public ownership and the principal status of distribution according to work has gradually weakened. In addition, the proportion of distribution by factors has gradually increased, resulting in the principle of “a distribution system in which distribution according to work is dominant” and is reflected in the number of people participating in distribution, rather than the amount for distribution. This phenomenon brings to light the widening distribution gap with the coexistence of multiple ownership economies and multiple distribution methods. The provisions of the constitution, regarding distribution systems, apply to initial distribution by individual members of the society, and form a distribution structure combining “distribution according to work” and “distribution according to factors”.19 Among these, people have a different interpretation as to whether “work” in terms of “distribution according to work” refers to workload, work product or labour rights.20 As for the various factors accounted for in the “distribution by factor”, they consist of capital, resources, technology, and management. The various factors contribute to production and operation in different ways, resulting in different market values or “weight” in revenues and forming a distribution gap. In recent years, it is precisely the emphasis on “distribution by factors” and the increase in the ability of owners of capital and other factors to gain revenues that result in differences in distribution, widened distribution gaps, and aggravated unfair distribution.21 Therefore, economic analysis and legal research need to be conducted to assess the respective proportion of labour and other elements in distribution and to determine whether the labour portion is too low or in decline. From a legal perspective, distribution according to work directly involves labour rights or labour property rights, while distribution according to factors involves a series of rights such as equity, credit, intellectual property rights, and

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further, investment rights. Each type of right entails revenue distribution rights; in other words, revenue distribution rights are an important component of the property rights of relevant subjects. Wage, remuneration, operating income, dividends, interest and royalties, etc.22 These rights are of great significance in initial distribution. The “force” and “benefit” between power and rights and between specific types of rights are not balanced; additionally, the “force” and “benefit” are not the same concept. Different types of rights have different returns given their different nature and this has a significant impact on the distribution gap and fair distribution. The differences in the level of capability of various types of rights need to be studied in depth. The above discussion mainly focuses on the distribution structure combining “distribution according to work” and “distribution according to factors” as stipulated by the constitution. Such structure corresponds to a series of important rights and thus forms an important structure of rights. Because the rights of different subjects are of a different nature, tension does exist between labour and capital, as well as between labour rights and investment rights leading to contradictions between labour and capital that affects revenue distribution gaps. Revenue distribution rights established by the constitution are directly related to the protection of basic human rights and constitute important research objects of human rights theory and constitutional theory. The realization of revenue distribution rights is related to the specific property rights owned by various subjects. Human resource stands out from other factors of production such as capital, land and technology, and is thus treated differently by the law. Owners of those factors may face disputes and are conciliated by law. Generally, labour laws, property rights law, contract law, intellectual property law, company law, bank law, securities law, insurance law and bankruptcy law contain specific provisions of various rights and constitute an important source of the initial distribution systems. Strengthening the coordination of these laws regarding revenue distribution rights is extremely important for solving distribution problems. In short, from a legal point of view, distribution structures are right structures composed of revenue distribution rights and of benefits enjoyed by various types of entities. The revenue distribution rights are based on the property rights of labour force and capital and are embodied in both the constitution and related specific distribution systems. Overall, the various types of property rights involved in initial distribution and relevant revenue distribution rights are mainly established and protected by traditional laws such as the constitution and civil and commercial laws. 4.2.2 Redistribution and modern legal adjustment of distribution structures Initial distribution focuses on the contribution of various factors in the market, places greater emphasis on efficiency, and less on fairness thereby making it

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difficult to solve problems such as the widening revenue gap. In order to make distribution among social members more reasonable while admitting a moderate gap, the state must prevent polarization and implement “secondary adjustment” distribution systems, which are also known as redistribution systems. Redistribution is secondary distribution undertaken by the government based on initial distribution.23 It is structural adjustment aimed at limiting initial distribution, and it seeks to make distribution fairer and more reasonable, so as to slow down or prevent possible unfairness, inequality and imbalance in initial distribution. In the process of redistribution, modern laws such as economic law and social law are required and they play an even more important role given that the distribution structure involving market entities or between residents and individuals, and the effective adjustment of the distribution structure between the state and the nationals. Among these, financial means including transfer payments and financial subsidies, tax incentives such as tax reductions and exemptions, and social security means can all be important means of redistribution which include a series of important rights and powers such as national fiscal rights, tax rights and social security rights. The allocation of these powers and rights is directly related to whether the distribution problem such as the excessive income gap can be effectively solved. From both the historical and realistic perspectives, an excessively large distribution gap and unfair distribution have or occur in most countries during the modernization process. The 1971 Economics Nobel Prize winner Simon Smith Kuznets contemplated the relationship between per capita wealth growth (efficiency) and per capita wealth distribution (fairness) from the perspective of development economics. In the early stage of development, per capita wealth growth will increase the revenue gap, but at a certain stage, as per capita wealth grows further, the revenue gap gradually narrows thus forming an “Inverted U Curve”24 in which income distribution changes with economic development. Although there are different views towards the “Kuznets Hypothesis”, the reality of development in China and related countries suggests such a hypothesis is valuable, and people are increasingly aware that the government’s effective distribution systems, notably the effective regulation of economic law, are key to preventing the distribution gap from widening. Many laws in a country’s legal system aim to distribute revenue, wealth, and resources. For example, heritage distribution in inheritance law, residual assets distribution in bankruptcy law, enterprise profit distribution in corporate law, salary distribution in labour law. Many laws involve distribution norms to varying degrees, but they are mainly used to solve the problem of primary distribution. Relatively, economic law is typical “distribution law” as it is particularly helpful in solving the problems related to the distribution and redistribution of national income, as well as the distribution of resources in the public economy as well as the distribution of social wealth. Therefore, economic law is insurmountable in analyzing the distribution issue, and attention should be paid to its functions in solving distribution problem – it is precisely because of its functions that economic law is commonly used in adjusting distribution structure as straightforward and key adjustment measures.

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Modern economic law designed to address market failures such as distribution imbalances has a direct and important impact on various subjects’ interests. They can be used to adjust the distribution structure, achieve redistribution goals, ensure fair and appropriate distribution and prevent misallocations and imbalances. Excessively large distribution gaps actually reflect improper and unsuitable distribution and can easily turn into inequitable distribution; large distribution gaps and unfair distribution are distribution structure imbalance at the macro level. To solve these closely related distribution problems, it is especially necessary to have effective regulation of economic laws. In summary, the distribution structure is not only an economic structure but also a legal structure, especially legal rights structure. Be it initial distribution or redistribution, distribution between market entities or between state and market, they correspond to a series of rights. Therefore, the adjustment and optimization of the distribution structure need relevant laws such as economic law.

4.3 Structural optimization in economic law 4.3.1 Structural optimization in economic law theory The optimization of the distribution structure by regulating economic law requires theoretical guidance and support to reflect the corresponding concepts and values and ensure systemic, scientific and intrinsically consistent structural adjustment and economic law construction. The distribution theory,25 as well as specific theories regarding the distribution structure adjustment, need to constitute an important component of economic law theory. In economic law, the optimization of distribution structure theory should be the core given that from a distribution perspective, the institutional arrangement or adjustment of the entire economic law is primarily in relation to distribution structure optimization. In this regard, the theory and system of the entire economic law can be reanalyzed. A series of specific theories in economic law can be extracted from the theoretical discussions and related institutional practices in previous chapters. These include relevance theory, utility theory, goal theory, moderation theory, system theory and category theory that constitute important theoretical bases for effective structural adjustment. We summarize these below. First, relevance theory emphasizes the interaction between distribution and institution, as well as between distribution structure optimization and economic law regulation highlighting their importance as the basis for economic law to optimize the distribution structure. Without such interaction, economic law regulation will not work on the distribution structure. As mentioned above, numerous distribution systems in economic law significantly influence the formation and change of the distribution structure. Meanwhile, the distribution of the revenue rights of several subjects by economic law directly determines the rationality of the distribution structure. To optimize the distribution structure, we must rationally allocate the right to revenue distribution in economic law. Relevance theory

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justifies the necessity and feasibility of “optimizing the distribution structure via economic law”, and stresses the need, in economic law to constantly address the problem of misallocation of revenue rights. Second, utility theory emphasizes the particular effects of economic law in the distribution structure optimization. The previous discussion suggested that different types of laws have different functions regarding distribution structure optimization. Traditional laws play a greater role in initial distribution, while modern laws have a greater role in redistribution. From the macro-control perspective, the utility of economic law in resolving redistribution issues is even more compelling. On the other hand, given the effects of economic law on the relevant elements of initial distribution, its pertinence to initial distribution cannot be ignored. In distribution structure optimization, economic law has its usefulness as well as and an extensive scope. Third, goal theory emphasizes the fact that economic law is a typical “distribution law” and its main objective is to promote economic, social justice and a healthy performance and development of the economy and society by standardizing distribution behaviours and ensuring distribution rights and benefits intended to realize efficient macro-control of resource allocation and further economic fairness and social equity. Distribution structure optimization also helps to improve the efficiency of macro-control and resource allocation, ensure and promote fair and just distribution, and promote stable economic growth and social harmony and stability. It can be concluded that the goals of distribution structure optimization are consistent with those of economic law regulation. The goals of economic law have a direct bearing on the aforementioned functions as well as its particular values. Values such as fairness, efficiency, order and justice are equally important for distribution structure optimization. Effective economic law adjustment and distribution structure optimization contribute to improving distribution fairness, increasing distribution efficiency, ensuring the distribution order and thus achieving distributional justice. Fourth, moderation theory emphasizes that distribution among various subjects should be moderate and “proportional”.26 It purports that distribution structure optimization relates directly to the constitution, human rights, and macro-control theories and further maintains that revenue or wealth distribution should be proportionate and not cause undue harm to nationals, be it to restrict government power, protect basic human rights or to ensure the efficiency of regulation and control. Moderation theory also includes certain important ideas that can provide guidance on distribution structure optimization. For example, because the role of government is to provide public goods, it should not engage with the people in the scramble for profit. In addition, the revenue of the government should not be excessive but only to the level that enables it to provide public goods. Furthermore, to achieve the goal of “prosperous nations and rich people”, government’s taxes and levies should not prejudice the base of finance and taxation. According to the Laffer curve, a country’s taxation must be moderate, i.e. the

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tax rate cannot be too high, and the tax burden must be rationalized in order to support additional tax sources. In practice, the US 1986 Taxation Reform Act,27 which embodies Laffer’s idea, is an example of tax reforms worldwide. China’s “broad tax bases and low tax rates” policy is also an example of moderation theory. Similarly, the “half principle”,28 formed by the Federal Constitutional Court of Germany in judicial practice, emphasizes that private property should mainly be used for private purposes and that tax over private property should not exceed “half” of its due or actual returns, so as to better protect private property rights. A benign “take and give relationship” is very important in such process – it is a prerequisite for positive interaction between the government and the people, and an important basis for the continuous improvement of government legitimization. Moderation theory also relates closely to goal theory. It emphasizes that both distribution structure optimization and economic law regulation should highlight “appropriateness” and conform to the moderation principle of economic law. Only by appropriate distribution can we achieve fairness and justice, sound distribution order and sustainability of all subjects and their actions. Fifth, system theory emphasizes that, given the complexity of distribution problems, distribution structure optimization and solutions to distribution problems should be considered systematically as a whole. In addition, these solutions are possible due to support from various systems of economic law. To fully realize distribution structure optimization, it is necessary to constantly improve the legal structure of economic law, achieve “dual adjustment” of both the distribution and economic law structure and enhance coordination between economic law and other relevant legal systems so as to better regulate various types of distribution relations and form a sound distribution order. Besides, system theory also emphasizes that economic law has a direct influence on the allocation of rights and the spread of wealth. To better give full scope to the function of economic law, close attention, as well as timely adjustments, must be paid to its structural rationality and actual operation. Sixth, category theory emphasizes that a large number of systems in economic law relate to subjects, behaviours, rights, obligations and responsibilities for distribution, which form a series of important “distribution” categories aimed at solving distribution problems, preventing distribution imbalance, ensuring distribution order and achieving fair distribution and justice. These categories are very important for building a more systematic “distribution theory” of economic law. On the other hand, through distribution categories, the entire economic law and economic legal jurisprudence can be re-examined to better understand why “economic law is distribution law” and why “distribution is an important clue throughout the entire economic law”. The above is only a brief analysis of several important distribution theories that affect distribution structure adjustment. These theories have important values for improving economic law and advancing distribution structure optimization. This means specific distribution issues can be adjusted by economic law if we apply such theories.

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4.3.2 Practice of economic law in structural optimization To adjust distribution structure and promote its continuous optimization, it is necessary, in practice, to continuously improve distribution systems in economic law, and focus on resolving, at a macro level, the problem of distribution structure imbalance, excessive distribution gaps and unfair distribution. These issues need to be addressed taking into account the above-mentioned distribution theories and by adjusting the internal structure of economic law, changing the unreasonable allocation of rights/powers and comprehensively promoting the improvement of specific systems of economic law. 4.3.2.1 Adjustment to structural imbalance through economic law Distribution structure imbalance is a major issue that should be resolved by economic law. Economic law should be perfected by aiming, in particular, at important and specific distribution structures. For example, the governmententerprises-individuals structure has always attracted much attention;29 as has the high-middle-low income structure. In view of these two types of structures, economic law should clearly and reasonably define the distribution rights of various types of subjects and ensure fair legal protection. As mentioned earlier, the proportion of the revenue of residents in national income and the proportion of labour remuneration in initial distribution have been relatively low in China in recent years. As an important embodiment of distribution structure imbalance, the issue of the “two proportions” has drawn great attention from the country and the society.30 In the long term, how to increase the “two proportions” is not only an important mission for distribution structure adjustment but also an important goal for economic law adjustment. 4.3.2.2 How economic law can adjust the low-income proportion of residents Many important arrangements should be made in (the national revenue) economic law including introducing various distribution means, to address the low income proportion of residents (in the national revenues), by not only increasing the revenue of residents but also its proportion. In terms of increasing the revenue of residents, a variety of means in economic law can be used. For example, transfer payments, financial subsidies and social security can increase revenues to achieve “for the people”; residents’ tax burden should be appropriately alleviated through various tax laws and regulations so as to achieve “give more and take less” and substantially increase disposable personal income (DPI) of residents. In addition, the government should increase the proportion of residents’ revenues by adjusting economic law. Since the beginning of the 21st century, China’s fiscal revenue has continued to be significantly higher than the GDP growth rate for many years, and its share in the overall national revenue has been rising year

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by year. This phenomenon has led to considerable criticism (Chongen Bai & Zhenjie Qian 2009).31 Through improvements in economic law, a reasonable revenue distribution structure between government and residents should be formed to ensure the order of revenue distribution and solve the “excessive collection” problem of fiscal and tax law. There are many economic and legal reasons for the constant increase in government revenue. One of the most important legal reasons is “double taxation”. Whether double taxation is viewed from the taxation, legal or economic perspective, it severely damages the people’s rights and interests and affects the development of relevant parties. At present, the unreasonable taxation and double taxation caused by uncoordinated economic and legal systems, as well as the resulting excessive tax burden have had a direct effect on the improvement of income levels and their overall proportion for residents, and therefore, worsened the issue of double taxation. It should be a key to perfecting the existing fiscal and taxation system. In recent years, the Chinese government has pushed for “business tax to VAT” reform in order to solve the double taxation problem. Furthermore, specific systems of economic law need to be improved in order to increase the proportion and overall amount of residents’ revenue. China’s corporate income tax law and personal income tax law are continuously improving with the aim of reducing the tax burden on companies and individuals and achieving fairness; China’s property tax system is constantly developing including real estate tax and resource tax pilots reforms.32 In the process of these institutional changes, China has been trying to integrate the concept of fair distribution. Although all attempts to promote fair distribution in the direct tax system are important, the impact of the commodity tax system on distribution should not be overlooked. After all, China’s main tax is still a commodity tax, and the tax burden for residents is essentially derived from commodity taxes. In the case where residents are both consumers and final bearers of commodity taxes, how to reduce the tax burden on certain commodities and thus relatively increase residents’ disposable income is a question worthy of in-depth study. Last but not the least, we must also pay special attention to the adjustment and improvement of fiscal law. For example, excessive government funds and charges directly affect the amount and proportion of the revenue of residents; the so-called “land finance” issue also affects the revenue of residents and requires improvement in the tax-sharing system, normalization of the distribution order and adjustment of the distribution structure. On the other hand, the continuous improvement of economic law is required as a solution to the historic “Huang Zongxi Law”,33 the prevention of increases in the tax burden of residents and the effective implementation of a reasonable distribution system in the long term. Since the relationship between the distribution structure adjustment and the legal adjustment of distribution relationship are all complicated problems, the improvement of relevant systems requires comprehensive contemplation from multiple angles.

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4.3.2.3 How to adjust the low proportion of labour using economic law The relatively low proportion of labour remuneration in the initial distribution process directly affects the “olive-shaped” income distribution pattern, further social stability. Increasing the proportion of labour remuneration in initial distribution also requires changes and adjustments in economic law. In the relevant statistical analysis, the resident personal income usually includes four types: wage income, transfer income, property income and operating income. Over the years, the proportion of wage income for Chinese residents has been about 80%. Under such circumstances, the wage income should fully reflect the principle of distribution according to work and increase the “weight” of the income for distribution of labour. The increase in the proportion of labour remuneration needs to be achieved by adjusting and improving various economic law systems. Take commodity taxes as an example, sales revenue and operating revenues, etc., are directly related to labour remuneration and are taxable. Therefore, various commodity taxes including VAT, consumption tax and business tax all affect labour remuneration. The taxation thresholds for VAT and business tax also affects the final level of labour compensation. As stipulated in the tax law, labour remuneration is also directly related to salaries, service fees and copyright royalties as well as income from the production and operation of individual, industrial and commercial households and income from contracted business operations of enterprises, etc. Institutional adjustments in these areas, in particular, in taxation items, rates, reductions and exemptions, etc., have a direct impact on the labour remuneration of residents.34 Even in the area of corporate income tax, labour remuneration is an important factor to be considered when deciding deductible items. In other words, whether to deduct and how to deduct (quota or reimbursement), relates not only to the wage system but also the corporate income tax system. It can be concluded that income tax has a significant impact on labour remuneration. As mentioned earlier, adjustments to the various tax systems including the abolition of agricultural taxes in 2006, all focused on increasing the overall remuneration amount. Increasing the proportion of labour remuneration at the macro level also touches on the relationship between labour income and capital gains, as well as various aspects of the system. From a tax law perspective alone, how taxes are levied on these two types of revenue involves distribution structure adjustment. Based on the division between industrious income and non-industrious income, industrious income such as labour remuneration should be lower, so as to protect the interests of most middle- and low-income earners. To protect the interests of middle- and low-income earners and increase their labour remuneration, it is also necessary to address the “weight” of the property rights of the labour force. The wage and other related systems that include labour remuneration should be further improved taking fairness and efficiency into account. Otherwise, unilateral emphasis on fairness, regardless of overall efficiency, will eventually affect the improvement of residents’ revenue levels.

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4.3.2.4 Using economic law to adjust the excessive distribution gap and imbalance This distribution structure imbalance interacts with excess in the distribution gap and this requires intervention from economic law. In this section, we begin by discussing how to adjust the distribution gap. Large income gaps among individuals, one of the major for society, may actually be caused and worsened by imbalances in other areas. For example, the wide distribution gap between various local governments directly affects the income distribution of residents. Financially constrained local governments usually place greater emphasis on the collection of fiscal revenue that impacts financial capabilities and spending power of resident. The fiscal disparities between the central and local governments and among local governments should be resolved mainly through the improvement of a tax-sharing system, especially through the transfer payment system.35 In relation to the distribution gap between the government and residents as a whole, resident revenues growth should be at the same pace with economic growth or even faster. This makes it possible to achieve a substantial and rapid increase in residents’ overall revenue and further promote economic development. With regard to the excessive distribution gap among residents, “diminishing superabundance” and “supplementing deficiency” should be achieved by improving financial subsidy and various types of taxation systems. Since the excessive distribution gap is attributed to complicated causes, its solution will also involve many ancillary systems. For example, the distribution gap resulting from excessive income for certain personnel of monopolistic industries (especially large state-owned enterprises) requires stronger legal regulation on the wage standard, cost accounting and bonus contributions of such enterprises so as to make revenue distribution more reasonable. In addition, the distribution gaps among residents have a relation with industry gaps and regional disparities. From the point of view of economic law, regional disparities relate to horizontal imbalances in fiscal transfer payments. In terms of reducing industry disparities, SOEs’ state-owned capital operating budget systems can play a role. Distribution gaps are inevitable, but their significance is limited in a market economy that emphasizes competition and differences. If labour of equal volume and quality cannot receive the same remuneration, unfair distribution issues will arise. Wages in different industries vary. For instance, the average wage in the securities industry can be nine times the average wage in the livestock industry (Dongsheng Zhang 2013).36 However, such large disparities do not directly and necessarily relate to employees’ labour or efforts. Rather, it is mainly due to the industries’ particularity or monopoly, which is undoubtedly unfair. The correlation between the distribution gap and unfair distribution is apparent.37 The solution to all kinds of distribution problems requires the cooperation of various economic law systems. For example, the cooperation between fiscal law and tax law is very important given that it relates to revenue. Additionally, fiscal law, in relation to expenditure and their cooperation, solves the fair distribution

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problem in a better manner. In addition, unfair distribution can have multiple manifestations. For example, in a country with low tax compliance and ineffective tax collection, substantial unfair distribution will occur for law-abiding residents. Similarly, irrational tax benefits or ineffective enforcement of arbitrary tax relief will also cause unfair distribution while excessive non-tax revenues and chaotic distribution order will certainly worsen the case. All these problems should be gradually solved by continually improving the economic law system.

4.4 Theoretical refinement of structural optimization Considerable importance needs to be placed on distribution and related problems should be solved effectively given its bearing on survival and development, stability and security and solidarity and harmony. In the new era of China’s economic and social development, contradictions between all parties have become increasingly prominent and distribution problems have become acute. It is urgently necessary to constantly optimize distribution structures in the process of transforming the economic development model. An unreasonable distribution structure is an important cause of distribution problems. Since distribution systems determine the distribution structure and the distribution structure reflects distribution system, the key to optimizing distribution structures is to change the allocation of revenue distribution rights/powers in distribution systems, stipulating clearly their “weight” and attribution, so as to better protect the relevant subjects, maintain the distribution order and achieve distribution justice. Various laws have different functions for optimizing distribution structures. The laws include constitutional law, civil law, commercial law and other traditional laws which are more prominent in solving the problems of initial distribution while modern laws, such as economic law and social law, are more effective in solving the problems of redistribution. Among all laws, the adjustment of economic law is unique in that it not only helps to solve redistribution problems but also helps to solve initial distribution problems due to its influence on the various elements involved in initial distribution. Therefore, economic law plays a prominent role in distribution structure optimization with broader effects. Theoretically, economic law, as a typical “distribution method” itself, contains “distribution theory” that includes relevance theory, utility theory, goal theory, moderate theory, system theory and category theory. These theories can provide theoretical guidance on distribution structure optimization and theoretical support for the adjustment and improvement of the specific system of economic law. From the institutional perspective, in light of China’s major realities concerning its current unbalanced distribution structure, excessive distribution gaps and unfair distribution, it is necessary to adjust the internal structure of economic law, change its unsound allocation of rights as well as alter the mode of decentralization. At the same time, the theory of distribution of economic law should be considered as a way to continuously improve specific systems.

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Based on the above discussion, it is necessary to reiterate that governments should constantly optimize the distribution structure to solve distribution problems. Distribution structures are not only the cause of distribution problems but also an important embodiment of a country’s legal structures and rule of law and they reflect the capabilities of a government and the rule of law. Therefore, distribution structures always have a bearing on the overall picture and cannot be ignored in economic, social and political systems. In addition, as a rights structure, the core of the distribution structure is the allocation of revenue distribution rights/powers. We should not only study the economic structure of distribution, but also its legal structure and continue to solve distribution problems through distribution structure optimization and by adjusting the structure of legal rights and obligations. As a major issue in economic and social development, distribution problems are an important research area of economic law. It is fundamental to adjust economic law and it is crucial for research to be undertaken in view of adjusting the distribution structure to promote balanced, sustainable, and healthy economic and social development. Therefore, refining the “distribution theory” in economic law helps to enrich and advance the development of the overall theory of economic law. The “distribution theory” in economic law involves many distribution concepts, such as distribution functions, subjects, behaviours, powers, rights, capabilities, imbalances, fairness, efficiency, order, justice, performance, structures and rule of law, all of which closely relate to many disciplines including philosophy, political science, economics and sociology, and require in-depth study. If the above-mentioned concept systems are established and improved upon, the overall theoretical study of economic law will be greatly improved. In summary, distribution problems are typical “complexity problems”, and distribution systems are typical “complexity systems”, resulting in extremely complicated distribution structure optimization issues. In the process of optimizing the distribution structure, although very important, economic law regulation has its limitations. To effectively optimize distribution structures and better solve distribution problems, we should systematically consider the coordination of various legal systems and policy measures, and comprehensively improve distribution structure adjustment scientifically and legally so as to form a sound distribution order and promote the benign and coordinated development of the economy and society.

Notes 1 Many scholars have discussed distribution justice. For example, John Rawls proposed in his Theory of Justice a principle of justice with sequence, and stressed that governments need to intervene in order to achieve such a principle. However, Friedrich Hayek opposed the concepts of social justice and distribution justice,as did Robert Nozick who held a laissez-faire view and opposed government intervention in distribution. In spite of this, an increasing number of scholars view distribution justice as important because they encourage governments to maintain fairness and justice in distribution.

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2 In the Analects of Confucius, Confucius said “Inequality rather than want is the cause of trouble”. This is an important distribution idea by Confucius that still has practical significance. Throughout history, chaos has resulted from distribution imbalance caused by uneven distribution, inequality and unfair practices. Consequently, it is important to maintain a high degree of vigilance against distribution risks and distribution crises that may be caused by unbalanced distribution. 3 Conflicts, increased social solidarity and social harmony can be reduced by solving distribution problems. See Durkheim, E. (2000). The Division of Labour in Society. Translated from the French by Dong Qu. Shanghai: Sanlian Bookstore, pp. 159–186. 4 The major motivation behind China’s reform in both urban and rural areas was to solve the problems with distribution. See Shouwen Zhang. (2009). The Meridian of the Development of China’s Economic Law – From [the] Distribution Perspective. Political Science and Technology Forum, 27(06), pp. 124–137. 5 The concept of the “middle income trap” was proposed by the World Bank. It emphasizes that when a country’s GDP per capita reaches around US $3,000, economic growth stagnates, there is polarization between rich and poor, corruption and democratic chaos and other problems are not uncommon due to internal and external reasons including economic development patterns. These lead to a decline in competitiveness making the transformation to a high-income country difficult. To this end, China must adjust its distribution structure in a timely manner and endeavor to circumvent such a trap. 6 Distribution is an important issue that needs to be resolved in a country’s economic and social development as well as legal system development. “Development law” that aims to study outstanding legal issues in development should make distribution an important research object. See Shouwen Zhang. (2005). The Development Law Science and Development of Law Science. Law Science Magazine, (3), pp. 3–7. 7 Back in 1995, China proposed to the “change economic growth mode…by transforming from an extensive pattern to an intensive pattern”. In recent years, China has placed more emphasis on “speeding up the transformation of the economic development mode and such a transformation involves the entire economic and social development process in all fields”. 8 Structural functionalist, Robert Merton held that manifest functions are the consequences of a social process that are sought or anticipated. An improvement in distribution structural may facilitate manifest functions. 9 The tax-sharing Reform (Fen Shui Zhi) in 1994 and the large-scale changes in tax law are important reasons for such change. See Shouwen Zhang. (2009). The Meridian of the Development of China’s Economic Law – From [the] Distribution Perspective. Political Science and Technology Forum, 27(06), pp. 124–137. 10 As mentioned above, David Ricardo believed that the rule for adjusting distribution was the basic issue of political economy, emphasizing the importance of the distribution systems; John Bates Clark believed that the distribution of wealth among different entities was a crucial economic issue. In fact, distribution is also a very important legal issue. 11 There are five major factors involved in distribution: labour, land, capital, management and technology. Early economists such as Anne-Robert-Jacques Turgot focused on labour, land and capital, and their corresponding revenues, wages, rents and profits (including dividend and interest, etc.). See Turgot, A.R.J. (2007). Reflections on the Formation and Distribution of Wealth. Translated from France by Risong Tang. Beijing: Huaxia Press. Most of the above-mentioned factors can be categorized as material and human resources, even though labour, given its importance, is often listed separately, thus forming the labourer vs owner of capital and other factors subjects structure. 12 Many resources, including income, wealth, rights and power are to allocated. But distribution structure mainly focuses on income or wealth. Though income and wealth

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are usually positively related and are used interchangeably, they are different concepts. Wealth constitutes of actual resources including land and real property. Powers and rights are legal arrangements. With respect to China’s Gini Coefficient, there are different statistics due to lack of official data and unified calculation. However, both official and unofficial statistics have shown that China’s Gini Coefficient was 0.4 in 2000. In 2013, the Gini Coefficient published by the National Bureau of Statistics exceeded 0.47. Fair distribution relates to “desert”, the core of which stresses that justice is when a man gets what he deserves. Aristotle, Adam Smith, and Immanuel Kant all discussed the meaning of “deserve”. It is generally accepted that the revenue a person deserves should be proportional to their contribution, diligence and effort. The Chinese government has recognized that a “reasonable income distribution system is an important embodiment of social fairness”. It therefore proposed that “initial distribution and redistribution should deal with the relationship between efficiency and fairness, and redistribution should focus on fairness”, and emphasizes “protection of legal income, adjustment of excessive income, and the elimination of illegal income”. Both the “rich people” (Yumin) thoughts proposed in Shang Shu and the “sufficient resources” thoughts advocated by Confucius (see The Analects of Confucius) emphasize the importance of enabling people to become rich. See Dingqi Wang. (2000). The Yumin Thoughts in the Shang Shu. Social Science Research, (4), pp. 128–131. The economics community has researched the weight of various revenue distribution rights from value and contribution perspectives. More research on how to quantify such weight is required. Yining Li proposed the concept of “third distribution” in his book Shareholding Systems and Market Economy published in 1994. He believed that in addition to initial distribution and redistribution, there is a third distribution which involves voluntary donation. To date, however, the impact of the “third distribution” on the overall distribution is still quite small. Since 2007, China has reaffirmed its adherence to and improvement of the distribution system in which distribution according to work is dominant and a variety of modes of distribution coexist. In addition, China has emphasized the improvement of the system where “labour, capital, technology, management, and other production factors participate in the distribution system according to their contribution”. This makes the distribution structure of “distribution according to work” and “distribution according to factors” clearer. In early discussions, some economists held the view that “work” should refer to the rights to own workforce, and believed that this will help to protect the interests of labourers. See Xianguo Yao, Jiqiang Guo, On Labour Rights, Academic Monthly, 1996, No. 6, p. 44. Subject differences, geological differences, and historical differences are the main factors that contribute to distribution difference. Distribution difference and unfair distribution lead to structural risks and, therefore, require the effective regulation of fiscal laws. See Shouwen Zhang. (2011). Distribution Difference and Regulation of Fiscal Law. Tax Research, (2), pp. 71–76. These income forms are taxable regardless of their nature. China’s Tax Law has listed all the aforementioned income forms as tax items. Some scholars have categorized redistribution into aid redistribution, compensatory redistribution, insurance redistribution and fairness redistribution. See Angang Hu, Shaoguang Wang, et al. (2003). The Second Transformation: National Institutional Construction. Beijing: Tsinghua University Press, pp. 275–311. Simon Smith Kuznets raised the Inverted U Curve hypothesis in Economic Growth and Income Inequality, American Economic Review, 45(1), pp.1–28. Since the various distribution theories cannot be summarized into a unified theory that can be commonly used, accepted or verified, the general macro distribution the-

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ory has been “unsatisfactory”. See Fennebrunner, B. (2009). The Theory of Income Distribution. Translated from English by Min Fant. Beijing: Huaxia Press, p. 371. In view of this, it is necessary to refine a “distribution theory” capable of guiding the distribution structure adjustment in economic law. Aristotle believes that justice must be modest and equal. He emphasizes that the fairness of distribution lies in proportionality, while injustice lies in the violation of proportion principle. See Aristotle. (2003). Nicomachean Ethics. Translated from Greek by Shenbai Liao. Beijing: Commercial Press, pp.134, 136. The basic idea of the Tax Reform Act of 1986 in the United States is to cancel ex-gratia payments, increase fairness, broaden the tax base, lower tax rates, simplify tax administration and promote economic growth. Such a way of thinking is still of significant importance. See US Congress. (1986). Tax Reform Act. (100 Stat. 2085, 26 U.S.C.A. §§ 47, 1042). The Federal Constitutional Court of Germany has developed the theory of optimal property rights taxation, emphasizing that the overall tax burden on taxpayer property should apply the “half principle” to prevent excessive taxation. See Kechang Ge. (2004). Basic Issues in Tax Law (Fiscal Constitution). Beijing: Peking University Press, pp. 177–178. For an analysis of revenue distribution among residents, enterprises and government, please refer to Xiaolu Wang. (2013). National Income Distribution Strategy. Beijing: Learning Press, and Haikou: Hainan Publishing House, pp. 52–27. As early as October 2007, China proposed to “improve the proportion of residents’ income in the distribution of national income and increase the proportion of labour renumeration in initial distribution”. Since then, the common consensus has been “to reasonably adjust income distribution relations, use reasonable efforts to increase the ‘two proportion’, reverse the income gap expansion trend as soon as possible”. For a detailed analysis, please refer to Chongen Bai and Zhenjie Qian. (2009). Who Are Taking Residents’ Income – An Analysis of China’s National Income Distribution Pattern. Chinese Social Science, (5), pp. 99–115. The pilot real estate tax reform involves revenue distribution between the government and taxpayers. The pilot resource tax reform involves not only the relationship between the government and taxpayers, but also between the central government and the local governments. Zongxi Huang believes that taxes and royalties reforms in history usually increase the burden on the people due to increases in various “miscellaneous royalties” after the reform. The idea was summarized by Professor Hui Qin as “Huang Zongxi’s Law”. The system of increasing labour remuneration needs comprehensive consideration and design. For example, China’s personal income tax implements is a classified income tax system which is unfair and which tends to increase residents’ tax burdens. Taxation items such as service charges and copyright royalties fall into labour renumeration, but the actual tax level is relatively high and does not encourage diligent work. With respect to the problems in the transfer payment system, China proposes to “optimize the structure of transfer payments, gradually increase the proportion of general transfer payments, clean up and integrate special transfer payments”. This will help significantly to solve the central and local distribution problems if effectively implemented. See Dongsheng Zhang ed. (2013). Annual Report of Income Distribution of Chinese Residents. Beijing: Economic Science Press, p. 91. Such unfair distribution reflects unreasonable distribution. Some scholars consider that it may be more appropriate to replace “fair distribution” with “reasonable distribution”. See Yining Li. (1994). Rationality and Coordination of Income Distribution. Social Science Front, (6), pp. 9–17.

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Distribution-oriented rule of economic law

As stated in the previous chapter, due to distribution pressure triggered by fiscal policy and the necessity to ensure the wellbeing of individuals and based on the need to prevent fiscal risk and crisis and to reduce the risk of unbalanced distribution, governments employ policies and laws to “adjust” the distribution structure. This phenomenon has given rise to multiple proactive regulations. Through the “co-adjustment” to distribution relation and structure and the optimization of distribution structure, rule of law in the economy is also improved. In fact, in the development of rule of law in the economy as way to solving the issue of distribution has always been one of the main goals of the “distributionoriented rule of law in the economy” and it makes solving distribution issues the primary objective for the establishment of the rule of law in the economy. Therefore, understanding the guiding role that distribution plays in the establishment of the rule of law in the economy enables us to examine the contexts and problems associated with the development of the rule of law in the economy through the approach or dimension of distribution and thus offering theoretical and policy support for advancing the development of the rule of law in the economy and better solving the distribution issue. Therefore, building on the discussions in previous chapters and from the distribution-oriented perspective, this chapter focuses on the distribution path to understand the development of the rule of law in the economy. By exploring the institutional changes in economic law, an explanation is provided for the emergence and development of economic law, for the consideration of solutions to the distribution issue as an important target and for the function of economic law as a regulator of distribution. We further discuss major problems existing in the field of distribution with the aim of revealing the future direction of the development of the rule of law in the economy.

5.1 Distribution orientation and the two types of distribution 5.1.1 Why the distribution path matters It has been only 100 years since the commencement of modern economic law. Therefore, compared to other branches of law, the history of economic law in

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China is rather short.1 Approximately every ten years, this academic community reviews the past as well as looks into the future, thereby accumulating knowledge, reinforcing consensus on theories and advancing institutional development (Hong Ma 1989; Changqi Li 2009).2 Through such reviews, many confusing theoretical issues have been resolved. However, some paths leading to the deepening of our understanding are still foggy and need to be clarified. To this end, we need to examine the “meridian” or pathway of the historical development of the rule of law in the economy in China. The term “meridian” is borrowed from Chinese medicine. It refers to the trunk path that runs through the human body and by extension the path that runs through an economic system of economic law. The study of economic law shares the same concept of “meridian” of economic law itself. Identifying precisely this “meridian” helps one to better comprehend the outline and gain an overall perspective of the study of economic law. It also aids people in discovering issues deeply rooted in the construction of the economic law system and legal research thereby providing guidance toward the resolution of issues and the development of economic law. To this end, uncovering the “meridian” that is hidden in the confines of the body of economic law study is of crucial importance. The first question one might ask is, what is the “meridian”? Answers to this question differ among researchers. From the perspective of necessity, the “meridian” penetrates through and connects every aspect of economic law. For example, chronically, it penetrates every period; contextually, it is indispensable. Therefore, one can analyze the main relationship between economic law institutions and theories from the perspective of “meridian” and thereby capture the main contents that one needs to focus on. Throughout the development of economic law, there are at least three noteworthy paths. The first path is the adjustment to the distribution relationship, otherwise called the distribution path. It is directly related to the attribution of the benefit and target of economic law adjustment. Following this path, one can learn the initial motivation of the reform, the focus of institutional arrangements and the driving force of the change of economic law institution. The second path is the policies related to the distribution of benefits. Through changes in these policies over time, one can see the transition process from politics to economy-guided policy and understand the important role that economic policy plays in the reform and “opening” and the development of research and an economic law system. The third path is to legalize the above economic policy or the so-called “the path to the rule of law”. Through these various paths, it is easy to perceive that with the deepening of reform, the adjustment to distribution relations and the changes in economic policy, law and the rule of law undergo changes accordingly. Because of these changes, economic law was born, and it became stronger. The three paths mentioned above, namely the paths of distribution, of policy and of the rule of law are mutually compensating and correlated. Actually, they are the three “meridian” lines that are vital to economic law. They run through the birth, study and development of economic law. At the same time, they constitute the indispensable parts of the development of the economic law system and

Distribution-oriented rule of economic law 107 research. Identifying these three “meridians” helps to better capture and solve the issues in economic law systems and research. Each one of the three mutually penetrating paths involves problems in various aspects. We narrow our discussion’s theme by adopting a distribution orientation perspective. Following the path of distribution, we will review changes in Chinese economic law system and economic regulation which initiated and developed alongside the reform and “opening” of China. We then will explore distribution issues that relate to the functioning of the government, the economic policy and the development of law and uncover their internal connection. We will close the discussion by emphasizing the importance of the distribution path as the “meridian” that penetrates economic law, its study and its function in promoting the future rule of law in the economy of China. 5.1.2 “Two distribution types” with an impact on the reform and “opening” and the development of economic law Economic law is usually regarded as prototypical “distribution law”. Both ancient philosophers and elite researchers in this field attach great importance to the issue of distribution.3 Studies on and the institutional development of economic law cover a wide range of issues including the distribution of the finance of the state, the income of citizens and the division of financial power among the state organs or the property rights allocation between market subjects, etc. This illustrates that the perspective of distribution is crucial in the study of economic law. In fact, economic law involves a wide range of issues related to distribution including departmental law which involves distribution issues in every aspect. For example, taxation law involves fiscal revenue distribution, financial law involves the allocation of currency supply while the area of competition law involves the distribution of competition rights. All of these involve the distribution of power, rights and interests between the relevant subjects. In view of the development of China’s economic law, the distribution of interests of nationals (including individuals and enterprises) and the financial distribution by the state are two important types of distribution. The primary motive of adjusting the two types of distribution not only drove the country’s reform and “opening” but also led to the birth and development of economic law. 5.1.2.1 Basic motivation: the need to adjust the distribution of individual interests Modern Chinese economic law was born in the early stages of China’s reform and “opening”. Under the traditional planned economy system, the institution of economic laws aiming to resolve the “two failures” –i.e. market failure and government failure – was impossible. It is the reform and “opening” that gradually laid the microscopic foundation and macroscopic structure of the adjustment of economic law. Therefore, the emergence and development of Chinese economic

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law are deeply intertwined with China’s reform and opening. It is the most important legal achievement that can be associated with it. Historically, the need for the distribution of interest for both individuals and corporations was the basic motive that drove China’s reform and “opening”. It is generally believed that the precondition for reform resides in the inability of production relations to meet the requirements of the development of productive forces to which the distribution relation is crucial. The loop of order-disorder in the history of China is closely related to the distribution relation. Before the magnificent reform and opening up in 1978, whether in urban or rural regions, the need to resolve distribution issues relating to individual interests already existed. It is because of these demands that the household contract responsibility system was first implemented in rural regions where people suffered the most. This was in areas including the famous Xiaogang Village in Fengyang, Anhui Province. Through the implementation of the household production contract, the household work contract and other similar reforms, the distribution relation was better adjusted and this increase led to a significant increase in the farmers’ initiative and to the initial success of reform in the rural area. The success boosted the confidence of decision-makers to put forth urban reform. Started in 1984, the urban reform centred on the reform of enterprises and was, therefore, directly connected to the interest distribution among the state, the enterprises and the individuals. In the course of reforming enterprises, whether the emphasis was on decentralization and interest concession or separation of powers and establishment of the modern enterprise system,4 whether it was on property rights reform, price reform or other reforms, the ultimate outcome was the distribution of interests given that the essence of reform is to change the existing interest distribution method in favour of new distribution relations. The need for adjustment to the interest distribution of individuals was the initial motivation for China’s reform and opening and the emergence of economic law. It directly propelled the initiation, reform and development of economic law in China. The redistribution and adjustment of individuals’ interests require not only the inheritance of conventional regulations and institutions but also the creation of new regulations and norms to deal with the problems that conventional regulations and institution failed to or could not adequately resolve. It should be noted that economic law was formulated because of the practical demand for regulations on individual interest adjustments. Additionally, the need for the adjustment of individual interest distribution reflects individual profitability. However, apart from this profitability, economic law also needs to take into consideration social welfare in order to adequately balance the two goals. Supporting public welfare, on the other hand, is directly related to the state’s financial distribution. 5.1.2.2 Direct motivation: demand from the state financial distribution The need for individual interest adjustment was the principal motive in promoting China’s reform and opening and it also constitutes an important driving force for the emergence of related economic law. On the other hand, the need for state-level

Distribution-oriented rule of economic law 109 financial distribution is the direct motivation for the advancement of a “constructive” type of economic law. According to Schumpeter and research conducted by other well-known economists, as well as the resulting “Schumpeter-Hicks-North Theorem” (Fan He 1998),5 it could be concluded that financial pressure is the direct cause of reform. This theorem is also applicable to China. In fact, before the reform and “opening”, China’s economy was “on the brink of collapse” (Hua Guofeng 1978)6 as the economic pressure at that time was unbearable. As a result of the lack of vitality and economic inefficiency, the difficulty in maintaining stable and continuous corporate profits increased day-by-day pushing the state financial system, which, at that time, depended mainly on profit from enterprises, to the breaking point. This situation compelled the state to undertake reforms. From a present-day perspective, it was the urgency to solve the financial crisis as soon as possible that served as the direct and crucial motivation for the state to reform urban enterprises. From the perspective of development, adjusting the distribution relationship between enterprises and the state and to effectively locate these two in the initial distribution were precisely the issues the state had to focus on. Given this scenario, it was crucial to give precedence to the state and enterprises while reforming interest distribution among the state, enterprises and individuals. Its significance is not only reflected in the financial or economic aspect but also in the legal aspect. From an economic law perspective, only after resolving the basic distribution relationship and allowing enterprises to have their own interests, can they become truly independent, be the real legal entity they are supposed to be and serve as the foundation of the main body of the market economy. This is based on this understanding that the state can employ economic law as a tool for market macro-adjustment and regulation. Otherwise, the development of a commodity economy and economic law will be beyond imaginable. State financial distribution is deeply related to the state’s public functions which include economic and social functions mainly aimed at providing public goods. Therefore, the state’s financial distribution is different from the distribution of individual interests and should reflect the degree of social welfare. Because the state’s financial distribution comes from the income of individuals and enterprises, their interests can conflict with the state and public interests leading to further conflict between individual profitability and public welfare.7 This can further evolve into a conflict between efficiency and fairness – the resolution of which requires relevant laws and regulations. However, in the traditional law system, each departmental law has its own well-defined applicable jurisdiction which cannot be easily expanded. Therefore, a new departmental law is needed to resolve the conflict – that is, the economic law. In summary, because it is fundamental and it serves as the direct motivation, the distribution of individual interests and state financial distribution further promote the in-depth development of the reform and opening up as well as economic law. In the field of economic law, the most important goals and functions of the economic law adjustment include paying close attention to the relation between individual interests and state financial distribution, resolving the basic conflict between individual profitability and social welfare and simultaneously taking

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into account both efficiency and fairness. Those goals run through and connect relevant economic law systems and become the key path of the development of economic law. The adjustment of the distribution relation falls under the category of “complexity problem”. As economy and society develop and as the reform and “opening” of China deepens, the problem will become more and more complex and the resolution to it requires more complete economic law systems as well as progress in economic law research.

5.2 Shift of the focus of distribution and the “U-curve” 5.2.1 Focus of distribution: a shift from product-oriented to right-oriented The above discussion on the distribution of individual interest and the distribution of national finance explains, from an economic perspective, the motives and reasons for the reform and “opening” of China. With the widespread existence of the private-public binary structures of desires, goods and interests, the above-mentioned two types of distribution tend to continuously drive the nation’s reform and “opening”, and promote the development of economic laws which, at the same time, represent and protect the fruits of reform and “opening”. Furthermore, with the progress of the two types of distribution, the focus has shifted from productoriented to right-oriented thereby establishing a direct relationship with changes in economic structures, institutions and legal systems. During the planned economy period, shortage of products (in Kornai’s terms “shortage economy”)8 called for arrangements such as monopolized purchase and personal distribution quota, etc. In addition to the National Planning Commission and the Ministry of Finance, functional departments such as the Ministry of Materials and the Ministry of Commerce were also established to address the distribution of materials and products. At that time, materials or products were the focus of distribution. During the commodity economy period, as products became tradable, national deployment was no longer in terms of distribution and the government was no longer entitled to direct appropriation but had to recognize the independence, interest and legal rights of various players. At a micro level, property rights and creditors’ rights have become increasingly important, and other forms of rights related thereto have become increasingly varied. The rights of parties to transactions and the powers of regulatory bodies have become scarce resources. How to define and protect property rights and how to ensure the effective exercise of different rights by different players has become a prominent issue. The process of defining rights is equally the process of the distribution of rights and interests, and therefore a distribution issue. The reason why the distribution of rights has become the focus is that transactions have become significant in terms of both volume and complexity in the commodity economy and that it is essential for both individuals and wider society to ensure transaction security and efficiency and reduce transaction costs and risks. According to the Coase Theorem, when the transaction costs are not zero, the initial allocation of property rights can be highly significant to allocate resources

Distribution-oriented rule of economic law 111 efficiently. Civil laws, commercial laws, economic laws and other laws that have the potential to affect the initial allocation of property rights have a fundamental impact on the allocation of rights – they directly affect the cost of microtransactions and the cost borne by the entire society. It is important, at both the micro and macro levels, to emphasize the influence of economic laws on the allocation of rights in view of improving the relevant economic laws. Notwithstanding the general discussion on the allocation of rights above, it should be noted that such an allocation usually includes division of powers, as well as rights allocation in specific legal practice. The reform and “opening” and the development of economic laws are, in fact, a process where powers and rights interact with each other – the government’s multiple economic powers have been decentralized or resolved, while the rights of the market have grown. The government has gradually shifted from a centralized administration to a layered decentralization in an attempt to create an environment where market players, as free economic subjects, can be active and innovative. Economic laws have played a positive role in facilitating such a process. The laws have established systems and institutions for the decentralization and adjustment of powers, particularly the powers to macro-control over economic and market regulation. This is more so given that civil laws and commercial laws have not been sufficiently developed to address issues regarding power decentralization or to make stipulations on issues relating to institutional laws. In general, the process of the allocation of economic powers and rights is a process where institutional laws and specific market regulatory laws have originated and have been developed. The development from a planned economy to a commodity economy and further to a market economy does not pertain solely to the nation’s reform and “opening” process, and the shift of the distribution focus from products to rights, but also, it is a process where economic laws have emerged and developed. It is helpful for the analysis to map out the development of economic laws from the distribution perspective. 5.2.2 An empirical analysis: the “U curve” in distribution and its implications 5.2.2.1 The presentation of “U curve” That the distribution of individual interest and the distribution of national finance are the important motives for reform and “opening”, and that the shift of the distribution focus from products to rights, fosters qualitative research on the basic approach to the reform and “opening” from a distribution perspective, and help to reveal the inherent and fundamental issues in the creation and development of economic laws. As distribution is directly related to the quantity of income or wealth, the flow and increment of which directly reflects the direction of distribution and the adjustment of related powers and rights relating, empirical studies regarding the types of distribution can help to discover the track of reform and “opening” and the economic law development thereby exacerbating the change in the division of government functions and powers. Considering that

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the distribution of national finance may explain the relevant issues in a more straightforward way, we use national finance as an example to illustrate the “U curve”9 (Kuznets 1955) in distribution. Furthermore, through tracking the “U curve” we will reveal the route of institutional reform from the planned to the market economy, the change of the government’s economic functions and the development of economic laws. A state’s fiscal revenue and expenditure are indicative of its participation in the distribution of national income. Analysis of fiscal revenue and expenditure may help determine the distribution of the government’s fiscal and functional powers, the supply of public goods, and the limitation or expansion of specific government powers. Considering that the data we have access to on fiscal revenue and expenditure is relatively accurate and can be used to reveal the relationship between the government and the people, it is feasible to investigate changes in the functions of government by examining the fiscal statistics. We set out a table which shows the relevant fiscal revenues and GDPs from 1978 to 2018 (Table 5.1). The table above can be analyzed in two ways according to absolute numbers and relative numbers. From an absolute number perspective, the financial revenue was above RMB100 billion and remained stable each year between 1978 and 1984, and then increased slightly to RMB200 billion each year from 1985 to 1990. Since 1992 when the market economy was introduced, fiscal revenue Table 5.1 China’s GDP and fiscal revenues from 1978 to 2018 (100 mm RMB) Year GDP

Fiscal revenue

Fiscal revenue / GDP (%)

Year

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

1132 1146 1159 1175 1212 1367 1643 2005 2122 2199 2357 2665 2937 3149 3483 4349 5218 6242 7408 8651 9876

31.0 28.2 25.5 24.0 22.8 22.9 22.7 22.2 20.7 18.2 15.7 15.7 15.7 14.5 12.9 12.3 10.8 10.2 10.4 11.0 11.7

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

3645 4063 4546 4892 5323 5963 7208 9016 10275 12059 15043 16992 18668 21782 26924 35334 48198 60794 71177 78973 84402

GDP

(Source: National Bureau of Statistics, all data rounded up)

89677 99214 109655 120333 135823 159878 184937 216314 265810 314045 340903 401513 473104 519470 568845 641281 685993 740061 820754 900310

Fiscal revenue

Fiscal revenue /GDP (%)

11444 13395 16386 18904 21715 26396 31649 38760 51321 61330 68518 83102 103874 117254 129143 140370 152269 159605 172593 183360

12.8 13.5 15.0 15.7 15.98 16.5 17.1 17.9 19.3 19.5 20.0 20.7 22.0 22.6 22.7 21.9 22.2 21.6 21.0 20.3

Distribution-oriented rule of economic law 113 1000000

35

900000

30

800000

25

700000 600000

20

500000 15

400000 300000

10

200000

5

100000

0 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

0

GDP

Fiscal Revenue

Fiscal Revenue/GDP (%)

Figure 5.1 GDP, fiscal revenue and fiscal revenue/GDP of China (1978–2018)

has increased by around RMB100 billion per year. From the year 2000, the annual rate of increase has been RMB200 billion per year. From a relative number perspective, we apply the index of the ratio of fiscal revenue against GDP which many Chinese scholars are using in recent years. From the late 1970s to early 1990s, although the absolute number witnessed a relatively slow increase, the GDP at the same period increased substantially each year. With the rising trend, the ratio of fiscal revenue against GDP declined until 1995 when the ratio dropped to the lowest point of 10.3%.10 In 1996, the ratio was 10.4% before rising to form a curve of “first decrease, then increase”. The curve is a U shape with a relatively large pointing up due to the relatively long selected period and a relatively low ratio of fiscal revenue against GDP (see the diagram below) (Figure 5.1). 5.2.2.2 Implications of the “U Curve” The “U curve” above helps to analyze various important issues of China’s reform and “opening” and in the development of economic laws. For instance, the “U curve” can roughly reveal changes in the government’s economic functions, as well as changes in the functions and objectives of economic laws. It also helps to reveal the institutional reforms for rights allocation and power division and to extend Wagner’s Law. Distribution of interest is thus essential for the study of reform and “opening” and the development of economic laws. Below we briefly examine these issues.

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5.2.2.2.1 THE “U CURVE”, THE ECONOMIC FUNCTION OF THE GOVERNMENT, THE DISTRIBUTION OF RIGHTS AND ECONOMIC LAW FUNCTIONS

Given that fiscal revenue relates directly to fiscal expenditure, which, in turn, relates directly to the government’s exercise of public functions, especially national economic and social functions, the following interaction between fiscal revenue and the government’s economic function is noteworthy. On the one hand, change in fiscal revenue tends to have an impact on the exercise of the government’s functions – the higher the fiscal revenue, the better the conditions are for the government to exercise its economic functions, while lower fiscal revenue has the ability to constrain the government’s exercise of its functions. On the other hand, the government, in order to better perform or expand relevant functions, inevitably requires more fiscal revenue which it plans to increase via institutional arrangements. Economic laws should pay particular attention to the interaction between fiscal revenue and government functions. As shown in the diagram, the ratio of fiscal revenue against GDP reached 31.1% in 1978, an indication of the government’s strong and all-encompassing economic functions during the planned economy period. However, considering the circumstances at that time, the basis for such high a ratio was quite slim given that the fiscal revenue was mainly drawn from the profits of state-operated enterprises. The institutions in charge of distribution at that time deprived the enterprises of their development potential and individuals of their income, which in turn generally dampened individuals’ enthusiasm, leading to the lack of efficiency and latent problems. Realizing the problem created by institutions in terms of distribution and their repercussions on the entire economy, China initiated reforms by launching the planned commodity economy and later the market economy. As mentioned above, the transition of China’s planned economy to a market economy, from the fiscal revenue distribution perspective, is a “U curve”. That means, the ratio of fiscal revenue against GDP went down gradually with the “decentralization” reform and dropped to the bottom at the beginning of the market economic system. As the understanding of the market economy and the government’s economic role deepened, the people began to realize that the market economy required the government’s macro-control and regulation and that such functions, as well as social functions, needed to be further strengthened. In a legal sense, the transition and legalization of the government’s function constitute a process where powers and rights interact with each other and where quantitative change accumulated to qualitative change. On the one hand, the government’s regulatory powers reduced gradually in terms of scope and volume; on the other hand, the rights of enterprises and individuals expanded gradually, and their interests increased accordingly. The “decentralization” at the early stage of reform and “opening” was a process through which individuals obtained more rights. Such a process not only influences constitutional laws, administrative laws, civil and commercial laws but also directly influences the emergence and development of economic laws. Reading from the history of economic laws, at that time, the initial functions and objectives of economic laws corresponded to the government’s functions and objectives. When the government’s economic functions were obscure, it was

Distribution-oriented rule of economic law 115 difficult to determine the functions and objectives of economic laws. In the era of substantive reform, the government’s changing economic functions would directly impact the construction of relevant institutions leading to the corresponding change in the objectives of specific economic laws. This explains why during the planned economy era, decision-makers could not reach an agreement on the functions and objectives of economic laws. With the gradual establishment of market institutions, the government’s economic functions, in particular, its economic and market regulation functions11 together with economic law macrocontrol, market regulation functions and relevant objectives have become clearer. A better understanding of the functions has contributed to the unification of economic legislation and the advancement of the theory of economic laws. 5.2.2.2.2 FURTHER DISCUSSION ON THE APPLICATION OF THE “U CURVE”

First, the above “U curve” is an indirect illustration and an extension of Wagner’s Law. In accordance with Wagner’s Law, fiscal expenditure will increase with the expansion of the government’s functions (Buchanan & Musgrave 2000).12 On the other hand, fiscal revenue and allocation will impact the fulfilment of government functions. China’s history proves that with the “decentralization” reform and transition from a planned to a commodity economy, the ratio of fiscal revenue against GDP declined, creating a corresponding reduction in the government’s function to directly administer the economy. Wagner’s Law may be extended this way: the reduction of fiscal revenue or the decline in the ratio of fiscal revenue against GDP would have a “shrinking effect” on the government’s function which would further reduce the size of fiscal revenue or expenditure. Of course, such extension is only a theoretical hypothesis and needs to be examined across various historical periods and different countries over time. Second, the above “U curve” may be applicable to other circumstances over a long time and in different contexts: (a) it may be applicable to countries that are in a transition period. In the transition to a market economy, the government’s function would initially reduce, then expand, and economic legislation would expand gradually turning the transition process into a U curve; (b) from a “big history” perspective (Renyu Huang 1997),13 the historical development from free competition to monopoly, and from no intervention to intervention, then to moderate intervention may form a U curve; (c) the government’s functions may undergo reforms, and the volume of economic legislation and their impact on the economy would change periodically and form certain changing cycles14 of economic laws, which may also form a continuous “U curve”; (d) periodic economic development would result in periodic adjustment of economic law (e.g. the cycle of macrocontrol law is consistent with the anti-cycle requirements), where the curve for such periodic change may be a U curve. To intercept a section of the “U curve”, it is possible to investigate various issues and help to predict economic and legal development, prevent volatile fluctuation and mitigate the effect of relevant cycles so that economic and social shocks can be mitigated and the goal of stable development can be better achieved.

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Finally, the above “U curve” can reveal the track of construction of economic laws and jurisprudential study. As mentioned above, financial distribution tends to impact the government’s function and vice versa; similarly, the government’s function tends to impact the institutional law, which is part of economic laws and further specific market regulation. Therefore, change of the government’s functions not only impacts constitutional laws and administrative laws, but also economic laws. The construction of economic law should be to the direction and orientation of financial distribution as well as changes in the government’s function. Similarly, the track of jurisprudential study on economic laws is consistent with the track of these aspects. This would be one of the important rules for China’s economic laws and linked jurisprudential studies.

5.3 The changes in distribution policy and the development of economic law 5.3.1 The spiral regression of economic policy: “centralization-separationcentralization” The above-mentioned distribution relationship would directly affect the immediate interests of related subjects. Therefore, at the beginning of the reform and “opening”, adjusting the distribution relationship was a significant part of economic policymaking. In fact, the distribution policy was the primary focus of various economic policies at the time. In addition, with the deepening of the reform and “opening”, both property right relationships and price relationships directly related to distribution gradually became major elements of economic policy. Subsequently, differences in approaches to reform appeared, with varying emphasis on property right or on price reform. Since the reform has been a gradual “crossing the river by feeling the stones” endeavour, it was difficult to formulate norms in relation to many aspects of the formation of legislation. At the same time, standardized forms of governing the behaviour of the people were indispensable. This brought to prominence the role of various kinds of economic policies or distribution policies. At the early stages of the reform, economic policy or distribution policy was not very mature and evidently had remnants of a planned economy. In fact, these were important instruments upon which the state directed and managed reform in related fields. Initially, many important economic policies were issued in the form of documents from the Central Committee of the Communist Party of China or the state council. For instance, the “No. 1 Documents” on rural reform for a consecutive period of time issued by the Central Committee of the Communist Party of China and the “Decision on Economic Restructuring”15 in 1984 contained considerable amounts of distribution policies. The economic policies of this period were characterized by the close integration of party policies and public policies as well as political policies and economic policies with more prominence on the direct management function of economic policies. With the intensification of reform and “opening”, especially with the improvement of statecraft and governance, the state has begun to attach importance to the implementation of the

Distribution-oriented rule of economic law 117 rule of law and to advance reforms in accordance with the law. At the same time, the employment of economic policy has gradually matured. Economic policy has become an important public policy and, through its direct indirect regulation on economic activity, has achieved remarkable results in the application scope of economic policy and implementation effect. Although economic policy is an important approach to regulating the economy in all countries, the specific function differs sharply across different historical periods and different economic systems. In a planned or controlled economy, the state has an economic monopoly and it controls the market. That means economic policies applicable to the market economy are not likely to be effective. On the contrary, in a commodity or market economy, the country executes a macroscopic market regulation system thereby exerting tremendous influence on economic policy. China has experienced both periods during the process of China’s reform and “opening”, meaning the characteristics of the two periods may contribute to a better comprehension of the development process of economic law. In fact, in a fully or predominantly planned economic period, the state, in many respects, needed to implement a “unified regulation” (i.e., control)16 resulting in restriction over individual freedom including the freedom of business. In addition, certain economic activities were banned, and the distribution policy was subjected to numerous restrictions as well. Therefore, the period of control was also the period of “restriction”, and economy-related policies mainly served the purpose of control and restriction. With the recognition of the shortcoming of control and restriction, the state began to “split the power” in economic policies or specific distribution policies. The so-called “separation”, including the emancipation of the mind, the decentralization of power and the release of bondage, is also called “untying”, and essentially constitutes the reform in itself: “open” is to open the door of [the] country, open markets and open up barriers to ensure freedom of trade. Such “opening” facilitates the emancipation of the mind and the change of system that unreasonably restricts economic freedom. Included is the “opening” of the distribution field. Of course, to avoid the many negative effects, “separation” should be gradual and appropriate. In fact, after a wider separation, growing problems of market failure have led to a more profound awareness of the necessity of moderate government regulation which was facilitated by the period of “opening” or “separation”. Thus, it could be concluded that Chinese economic policies or distribution policies have experienced three different periods: initially restriction, then separation and, finally, moderate regulation. The above three periods of economic policy or distribution policy, from the perspective of the state, reflect a process from the initial concentration to separation or “opening” towards moderate concentration, which can also be referred to as “centralization-separation-centralization”. But “centralization” that is a reflection of a moderate degree of control is different from the previous one. These two “centralizations”, which highlight a spiral regression pattern, are not at the same level. In fact, it is a regression which is consistent with the “U-shaped curve” of the previous fiscal distribution. It also indicates that the financial allocation of the

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state has a positive correlation with economic policies, economic functions and economic law of the country. In the process of “centralization-separation-centralization”, the stage from the original “restriction” to “opening” comprises the first shift from “centralization” to “separation”, and during this process, the national plan instruction – as well as related controlling factors – decreased day by day. With the “opening”, the state monopoly and market control gradually loosened, and “simplified working processes and softening the terms” or “decentralization of power and transfer of profits” became the mainstream economic policy of the period. The implementation of these policies saw the macro-foundations of the adjustment to civil and commercial law and economic law. With the gradual transformation from a planned to a market economy, the main form of economic policies also gradually became clear as they evolved systematically from the initial comprehensive rural and enterprise policy to the fiscal, taxation, industry, competition and foreign trade, etc. policies with close links to the market economy. The government has gradually learned to use economic policy more consciously for macro-control and market regulation. Particularly, the application of economic policy became more mature after the establishment of the market economic system target in 1992. For example, in 1993, the state employed relevant monetary policy and financial law to carry out macroeconomic regulation and control in the financial field to resolve the issue of the overheating of the economy and thereby, eliminating the factors resulting to the financial crisis that occurred in many countries in the aftermath of 1997. Then after the flood of 1998, the positive fiscal policy was adopted for many years and it successfully solved the problem of insufficient domestic demand, deflation and the subsequent economic depression.17 For many years, the main focus of China’s macro-control has been on the cold and hot fluctuation of the economy. That explains why the state implemented a robust regulation in the transition period with the aim of maintaining the economic order. The relevant economic legislation would usually reflect these economic policies which are relatively mature, stable and important. From this vantage point, therefore, “economic law is the legalization of economic policy” and it “plays an important role in safeguarding the effective implementation of economic policies”. There exists an intrinsic connection between the objectives and tools of economic policy on the one hand, and the adjustment objectives and adjustment means of economic law. This connection establishes a close interrelationship between economic policy and economic law underlined by the fact that economic law shows strong policyoriented characteristics.18 Following the path of economic policy, we can also comprehensively grasp the entirety of economic law and economic jurisprudence.    specific impact of economic policy on economic law – taking  5.3.2  The fiscal and taxation distribution as an example It is well known that China’s economic system reform has been developed along the route of progressive decentralization of power and transfer of profits. On one

Distribution-oriented rule of economic law 119 hand, through the constant referral of power to enterprises and the granting of profits to the private economy, market players have gradually grown and enterprises have become independent market entities. On the other hand, the government could build a more standard and stable financial system of tax federalism by changing the functions of government, innovating the financial system and adjusting the distribution relationship between the different levels of government. The above two aspects respectively involve two types of distribution, namely, the distribution of individual interests and the financial distribution of the state. Since both types of allocation involve fiscal and taxation policies within economic policies, this section focuses on fiscal and taxation policies as an example to analyze the path of the reform and “opening” and the path of development of the economic law. As mentioned before, financial pressure was a direct cause of China’s reform and “opening”, while individual interest distribution had been the fundamental motivation for it. In the late 1970s, the country was faced with two contradictory problems. First, the sustenance and development of enterprises and individuals required funding. As a result, a policy was initiated to ease the burden, transfer power and grant additional benefits. However, the alleviation of the financial pressure meant that the state had to guarantee the sustainable growth of the fiscal revenue. In fact, as the “North Paradox” reveals the “country is both a source of economic growth and the cause of economic decline”. If this is viewed from the opposite perspective, then it could logically be concluded that individual interests are also the source of economic growth and the cause of economic decline (Coase, Allchian & North 1994).19 Therefore, the economic policy of distribution must adequately balance these two factors. At the beginning of China’s reform and “opening”, the state needed to consider how to promote the development of enterprises and increase the remuneration of individuals. In terms of fiscal and taxation policies, at that time, fiscal and taxation instruments were not important regulatory tools due to a weak economic foundation. With the deepening of the reform and “opening”, and with the increasing GDP that surpassed the rate of fiscal growth (known as the U-shaped curve), the role of fiscal adjustment and distribution has become increasingly obvious. Fiscal and taxation policies have become vital tools for income distribution and macrocontrol in the country. It is noteworthy that in the process of reforming the “decentralization of power and transfer of interests”, the state gave up some power in order to gain financial revenue due to the pressure to maintain a certain level of fiscal revenue. At the same time, the state made great reservations when transferring fiscal power thereby leaving some enterprises with quite heavy burdens. Such a practice was a deviation from the principles of fair tax burden. For example, after the implementation of the “changing profits into taxes” in China, the income tax rate for large- and medium-sized state-owned enterprises was as high as 55%. Moreover, companies were likely to be subject to enterprise income adjustment tax, which imposed excessively high tax burdens on such enterprises. In addition, collectively owned enterprises were subject to a higher excess progressive tax rate of

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eight levels of up to 55%. Foreign-invested enterprises with no historical “baggage” were the least taxed. And the nominal tax rate was only 33%. In practice, the actual tax rate for a lot of enterprises was just 15% or under. State-owned enterprises contribute the bulk of financial revenue meaning that the more productive the enterprises are, the heavier their tax burden. The fiscal and taxation policy at that time was described as “the cattle that plows the most field gets whipped most seriously”, so its “ratchet effect” was very prominent.20 And this led to the long-plagued problems that the state-owned enterprises have during China’s economic development. In addition, even though preferential distribution to foreigninvested enterprises contributes to the implementation of “opening” policies such as attracting foreign investment, such practice jeopardizes the principle of fairness and results to the issue of discrimination in distribution. As we have seen, such taxation system discriminated domestic and foreign-invested entities and the 1994 Tax Reform failed to resolve the problem. It was not until the New Year’s Day in 2008, with the implementation of the new enterprise income tax law, that the discrimination against domestic entities was eliminated (Shouwen Zhang 2008).21 Two corporate tax reforms signify the manifestation of the intensive adjustment to corporate tax policy in the early 1980s and early 1990s respectively. From 1983 to 1984 the “changing profits into taxes” policy was implemented in two steps (associated with the shift from appropriation to loan,22 which also involved distribution). This policy facilitated the cultivation of market subjects by allowing enterprises to pay taxes instead of turning overall profits to the state. The “1984 tax reform” generated the following outstanding problems regarding the tax policies and tax systems: (1) the tax law is not unified; (2) the tax burden is unfairly allocated and; (3) the tax system is not concise. Because of these problems and along with the requirements of the fair tax burden and fair competition required by market economy, China carried out extensive tax reforms in the early 1990s and from then on, the state’s tax policy began to show more evident indications of market-orientation and the weights of a fair tax burden increased. Historically, changes in fiscal and taxation policies in China have been implemented via the process of “centralization-separation-centralization”. In the beginning, when the form of the enterprises was comparatively identical, the state’s tax policy on Public Enterprises was relatively “centralized”. With the increase of the forms of enterprises, especially the increase of the amount of foreign-invested enterprises and private enterprises, the state started to formulate different tax policies according to the various forms of enterprises. Correspondingly, the legislative power to regulate the income tax of domestic enterprises is generally devolved to the State Council, and the tax rate is constantly lowered to realize “decentralization of power and transfer of profits”. This, in other words, constitutes the process of “separation”. As problems pertaining to scattered legislation and tax injustice deteriorated, the central government began to take back taxing power for the state sought to solve the problems that appeared in the period of “indulgent legislation” or “extensive/coarse legislation”. Accordingly, the goal of the tax reform of 1994 was defined as “unification of the tax law, the fairness of the tax burden, simplification of the tax system, and reasonable decentralization of power”, to

Distribution-oriented rule of economic law 121 achieve the goal of safeguarding fiscal revenue and macroeconomic regulation and control. Because of the effort to achieve these objectives, the practice of concentrating power in finance and taxation appeared again. At the same time, based on the requirement of the financial statutory principle, the state imposed stringent requirements for the standardization and legalization of various fiscal and taxation policies. As stated in the section above, economic law is the legalization of economic policy. The legalization of all these fiscal and taxation policies constitutes an important part of economic law. Therefore, the development of an economic law system is in accordance with the changes in these fiscal and taxation policies. Through changes in fiscal and taxation policies that are directly related to distribution, the mystery of the regular pattern of development of economic law is also clear.

5.4 The system and theory of distribution Based on the evolution of the market economy, the development of legislation and legal theory in economic law, marked by an amendment to the constitution in 1993 which established a market economic system,23 can approximately be divided into two phases: the first stage, from 1978 to1993, which is a period when the theory of economic law developed along with the economic system reform and the initial progress of China’s legal system, thus giving birth to various theories in both economic law and economic jurisprudence; the second stage, from 1993 to the present, witnessing the steady development of economic law and economic jurisprudence, during which, due to the common economic basis, the scholars of economic law field accordingly have reached a consensus about the basic theoretical knowledge of the market economy and legal system construction which not only make the goal of the legal system construction more clear and certain, but also contribute to the steady development of economic law. 5.4.1 The construction of an economic law system through the distribution line The idea of “taking economic construction as the centre” as proposed by the third plenary session of the eleventh CPC of 1978 had a huge influence both on China and its legal system particularly the acceleration of the construction of its economic legal system. Looking back to the history of China’s struggle with fiscal subsidies and taxes between enterprises and individuals, it is clear that distribution has become the principal avenue through which we can trace the construction of economic law. As far as the legislative aspects of economic law are concerned, despite the diverse legislative levels and types, distribution has remained the focus, whether it refers to rural or city reform; enterprise benefit or individual interest adjustment and; individual interest distribution or financial interest allocation Given that there are so many laws and regulations in the field of economic law, only

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the typical ones are addressed discussed here. The first example is Provisions on a Number of Issues Concerning the Development of the Communal/Production Team’s Enterprises (trial draft),24 issued on July 3, 1979, by the state council, which not only involved the development of rural enterprises and industrial problem but also mentioned the adjustment of distribution relationships. Similarly, the Interim Provisions on Promoting the Union of Economy issued on July 1, 1980,25 by the state council (replaced shortly after by the Provisions on the Further Promotion of Lateral Economic Integration promulgated by the state council on March 23, 1986) stated the relationships of competition in economy law as well as the distribution relationships. In conclusion, adjustments to the distribution relationship was always a necessary part of the legislation despite its comprehensiveness during the early stage of the reform and “opening”. At the early stage of the reform and “opening”, both the distribution of individual and financial interests closely connected with each other but there were two difficult problems that required effective solution via economic legislation. Therefore, China issued interim provisions regarding the implementation of the fiscal management system of “dividing income and expenditure and the classified contract system” in 1980. The systems emphasized the division of financial income and expenditure between governments and demanded the full development of government initiative to fully exercise its power and undertake its financial management responsibility under the premise of consolidating the unified central leadership and plan and ensuring the central government’s necessary cost. Similarly, the third session of the fifth National People’s Congress passed the “Individual Income Tax Law” on September 10, 1980, in an attempt to resolve the distribution problems of the government as well as the distribution problems between the nation and the individual (especially foreign individuals). For the same reasons, the state council issued “the Decision on Balancing the Fiscal Balance and the Strict Fiscal Management”, and regulations on government bonds in January 1981. These measures preceded the launching of the national debt tool which had not been used for years to balance the financial budget and solve the problem of fiscal distribution. In addition, the fourth session of the Fifth National People’s Congress passed the Foreign Enterprise Income Tax law on December 13, 1981, with the aim of further resolving the issue of interests distribution between the nation and foreign enterprises, which proved to have a positive influence on alleviating the country’s financial difficulties, promoting “opening” to the outside world, safeguarding the national financial interests, and ensuring the tax burden of various enterprises. With the deepening of reform and “opening”, especially the launching of urban reform, the distribution of interests between state-owned enterprises and the state became a prominent issue. Given that state-owned enterprises (which were called state-operated enterprises) compared with the foreign enterprises and individuals, was the main provider of the national finance income, it was necessary to straighten out the distribution relationships between the state and state-owned enterprises in order to effectively promote the reform. Therefore, China began to implement “changing profits into taxes” policies in the early 1980s. These policies had a profound economic and legal influence. From the legal aspect, the

Distribution-oriented rule of economic law 123 “changing profits into taxes” policy put the distribution relationships between the state and the state-owned enterprises into the orbit of legal adjustment making state-owned enterprises genuine corporate organizations. In the economic aspect, state-owned enterprises began to embark on the path of self-management and selffinancing. According to the Interim Method for the Second Step of Tax Reform of State-owned Enterprises approved and issued by the state council on September 18, 1984, and a series of interim regulations on taxation (draft), China gradually introduced product tax, value-added tax, salt tax, business tax, resource tax, city maintenance and construction tax, property tax, land use tax, vehicle and vessel use tax, state enterprise income tax, state enterprise regulation tax and other taxes thus making the tax law an important tool for allocating income or distributing wealth between the state and the citizens. Although having played an important role in promoting the reform and “opening” of China in the late 1980s, this tax system, which constituted an important part of the economic law system, began to show its deficiencies after the establishment of the market economy system in 1992. Thus, China implemented the “tax reform” in 1994 to amend and supplement the above-mentioned taxation distribution that became the basic tax law system of China’s market economy. Although the tax system has been reformed almost every decade after the reform and “opening”, since 2004, there has been no large-scale tax reform as the ones in 1984 or 1994.26 This probably indicates that the rule that of the relevant system usually improves step by step rather than by leaps and bounds after the basic market system is established. It’s well-known that the economic system has a considerable influence overthe relevant legal system and the economic base plays a decisive role in the development of economic law. The development of China’s economic law should shift from the original comprehensive legislation to more specific legislation following the transition from a planned commodity economy system to the market economy system, a period during which China’s economic management also witnessed a corresponding shift from “controlled economy” to “modulated economy” (that is, from “unified control” to “modulation and regulation”). Meanwhile, the content of the entire legislation of economic law should reflect the fruits of reform and “opening”, that is to say, the main economic policies should be legalized. Given that distribution is crucial in tracing the course of reform and “opening”, it goes without saying that distribution should be crucial in the development of the entire economic law system. 5.4.2 The study of jurisprudence through the distribution line Distribution, as illustrated in various theories, should be a vital clue in economic law system construction and legal research given the importance of the distribution of individual interest and national finance distribution in the construction of and research in economic law. As mentioned above, the planned economy and the people’s lack of legal awareness jointly led to the sufficient laws at the beginning of the reform and

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“opening”, during which the legislation was usually concentrated on traditional fields including criminal law and criminal procedure law. Legislation on economy law, for its part, was usually was closely connected to national sovereignty, as the tax law. Meanwhile, the state council became the main legislative body as it was authorized by the National People’s Congress (NPC) which passed regulations and issued documents considered to be important legislative resources because of China’s reform was ambiguous and the legislative capacity of the National People’s Congress was weak.27 In addition, the basic theory of economic law had not been not fully established. For example, many different opinions were put forward regarding the object of economic law because academia was unaware of its functions, objectives and object. As a result, there was confusion regarding the delimitations of civil and commercial law, economic law, etc. Including notably “the length and breadth unity theory” derived from the Soviet Union, suggesting that both vertical and horizontal economic relations should be adjusted by economic law. In conclusion, the length and breadth unity theory and other relevant theories were reasonable to some extent, given the situation of the economy, politics, society and law at that time. With the development of marketization and the implementation of the planned commodity economy system, especially the promulgation of “general civil law” in 1986, it began to be clear that longitudinal economic relations shall be adjusted by economic law and administrative law,28 leading to an increase in economic regulations which were used to adjust the longitudinal relations appearing (“changing profits into taxes” and subsequent relevant tax laws or rules that were promulgated during this period). The deepening of reform and “opening” and the change of economic system have a great influence on both the contents of the economic law system and theory. Meanwhile, many theoretical viewpoints in economic law changed in accordance with the horizontal economic relationship adjusted by civil law. For instance, “management and collaboration theory”, a highly generalized development of the actual situation in economy and law, reflected not only “planned” economy, but also “commodity economy”, which was ultimately consistent with both the planned commodity economy system and economic law concerning the planned commodity economy. It is well known that a series of economic laws compatible with the market economy began to emerge only after China clearly put forward the goal of the market economy in 1992. The issuing of several important department laws in the name of market regulation laws in 1993 (including “Law of the People’s Republic of China on Countering Unfair Competition”, “Law of the PRC on the Protection of the Rights and Interests of Consumers”, etc.), the fiscal and taxation laws in 1994 (especially a large number of the interim regulations on tax) and the financial legal system in 1995 (such as “Law of the People’s Republic of China On the People’s Bank of China”, “Law of the People’s Republic of China On the Commercial Bank”), marked the establishment of an economic law system. These, in turn, promoted not only the issuing of the fiscal and tax law, financial law, the competition law and other related department laws29 but also the development of

Distribution-oriented rule of economic law 125 economic law theory. In fact, there were already some theoretical discussions in the field of economic law concerning the market economy from the end of 1992 to the beginning of 1993. These discussions flourished in 1994 and constituted a new theory about the “economic laws” because they were sound consensus-based theories on the market economic system (Jiangping Xiao 2002).30 The new theory enabled people to agree at that time because it reflected the common economic and legal principles in the market economy, and, when compared to the past, it showed no fundamental differences in basic hypothesis, regulating object, subject characteristics, system, as well as specific theory such as subject, behaviour and responsibility. Thus, a stable economic system plays an important role in forming a stable economic law system and reaching a basic consensus on economic law theory. Overall, the economic system, economic policy, economic law system and the theory of economic law of China are influenced by the ideas of that period which include regulars, liberalism and moderate regularism at different times. These are clearly perceptible in the legislation especially in the purpose, principles and economic law regulations, legal research including the understanding of functions, objects, characteristics and systems of economic law in different historical periods. For example, it is not hard to find that economic law is modern law which is capable of effectively resolving the problems of modern society based on its function of undertaking macroeconomic regulation and market regulation. Economic law is the law to boost development, to solve development problems to which the modern state generally pays attention. Economic law is the “law of policy”, which prominently reflects the policies of the government, and has the characteristics of macro regulation and market regulation and modulation.31 China’s reform and “opening” shows that the change of production relation, especially of the distribution relationship, promoted the change of the economic system, and then led to the change of the law, during which economic law emerged and developed. Rapidly or slowly, the thoughts, ideas, opinions and theories of economic law also changed. And economic, social, political and other development or the development of the legal system and theory have profoundly affected the institutional construction and legal research of economic law. At last, it is clear that distribution is undoubtedly one of the important factors as well as an important clue of economic law system construction and legal research on the ground that the institutional change, thoughts change and theory change, are affected by the combination of a variety of factors in the field of economic law. 5.4.3 Conclusion Based on the discussion in this chapter, it could be concluded that China’s reform and “opening” began with distribution and deepened through adjustments to relations with individual interest distribution acting as the basic motivation of the reform and “opening” and national finance distribution as the direct motivation of reform and “opening”. These not only drove and deepened the reform and “opening” but also promoted the development of the economic law of China.

126 Distribution-oriented rule of economic law From the distribution perspective, China’s reform and “opening” has experienced a shift “from focusing on product allocation to rights allocation” during the course of which dividing and configuring power and rights have been the focus of all kinds of subjects, and hence an important problem, or even the core problem, of economic law construction and research. Distribution has become an important factor in the development of China’s economic law and economic jurisprudence. China’s reform and “opening” has gone from “decentralization of the power and transfer of profits” to developing the market, moderating centralization and conducting macroeconomic control and market regulation. During this period, the “centralization-separation-centralization” process of power is positively correlated with the performance of state functions and the exercise of authority where changes along the process are reflected in changes in the national financial allocation. Changes in the data of fiscal revenue since China’s reform and “opening”, which appears as the “U-shaped curve”, are precisely consistent with the path of “centralization-separation-centralization” in power control. Many extended studies carried out using the “U-shaped curve”, particularly reveal the inherent connection between the allocation and national economic function, economic system, economic policy, economic law system and economic law theory. The distribution will be concretely reflected in various economic policies, especially in fiscal and taxation policies which can directly affect distribution. The economic policies of China are directly related to the economic functions and economic system reform of the country, hence the reflection of the development path in the form of the “U-shaped curve”. Simultaneously, Economic law was the legalization of economic policy. Its development and related theory also appeared as U-curves. The path of economic law was consistent with the change of allocation, economic institutions and policy. Based on the aforementioned consistency, it could be concluded that “two types of distribution” and the fiscal and taxation policies related to distribution, effectively reveal the core of institutional construction and legal research of economic law from different angles. The economic law system and the theory of economic law are closely and internally related, and distribution is an important connection to the system and theories of economic law. To understand the development path of the economic law system and its existing problems is to understand the key points, difficulties and problems of economic law theory and research, which helps to better promote the theory development and system construction of economic law and transforms economic law to modern law effectively promoting economic and social development. In conclusion, because of its close connection with both national and individual interests, distribution is the life wire that runs through both China’s economic law system and economic law theory, with great value for the reform and “opening”, for the transformation of national economic functions, for the formulation of economic policy and the formation of an economic law system. Distribution is not only a sustainable task of the construction of the economic law system but also a constantly changing field which deserves attention and significant input.

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Notes 1 There is no general consensus regarding when economic law begun in China. Some researchers believe that the translation and analysis of foreign literatures on economic law theory marked the start of economic law study in China. Generally speaking, the majority of Chinese researchers tend to regard the year of 1978 as the actual starting point. 2 Every ten years, review articles are published summarizing the previous decade. For example. Hong Ma.(1989) .Commentary on the Debate of Fundamental Theoretical Problems in the Study of Economic Law. Caijing Yanjiu, 15(12), p. 55; the article resulting from the young scholars meeting in the late 1990s economic theory of a number of theoretical issues, published in “Chinese and foreign economic law” issue 3, page 90, 1998; Changqi Li. (2009). Three Decades of China’s Economic Law: Progress, Issues and Future. Jurist 116(5), p. 25, among others. 3 As early as the 18th to 19th century, Morales and Desaami put forward the “distribution law or economic law” in their books Natural Law and Public Code, respectively. In addition, German’s “wartime control law” during World War I and the United States “crisis countermeasures” in the 1930s are, in fact, directly related to distribution. In the early period of the market economy of China, some scholars viewed the law and regulation related to distribution as parallel to and having equal importance with the law of macro-adjustment method. See Changqi Li (1995). Economic Law – the basic legal form of national intervention. Cheng Du: Sichuan People’s Publishing House, pp. 403–405. 4 Decentralization and interest concession, separation of powers and establishment of the modern enterprise system are commonly regarded as important stages in the reform of state-owned enterprises. All of the three stages are, in fact, directly related to the reform of the distribution system, especially the adjustment to the distribution relation between the state and the enterprises. 5 Fan He. (1998). Legislation for market economy: financial problems of modern China. Beijing: Today’s China Publishing Co., pp. 34–39. 6 Hua Guofeng is commonly recognized as the earliest to come up with the analysis. See, Guofeng Hua, Unite in the fight to build a powerful socialist modern state – the government work report at the Fifth National People’s Congress, February 26, 1978. 7 These are the basic conflicts in the field of economic law by which every departmental law, such as the taxation law, has to be adjusted and conflicts have to be constantly resolved. 8 Janos Kornai, an academician and economist at the Hungarian Academy of Science, has undertaken in-depth study on shortage, see Janos Kornai. (1986). Economics of Shortage, translated by Xiaoguang Zhang, Zhenning Li, Weiping Huang. Beijing: Economic Science Press; Janos Kornai. (1986). Growth, Shortage and Efficiency: A Macrodynamic Model of the Socialist Economy, translated by Zhiyuan Cui, Mingjin Qian. Cheng Du: Sichuan People’s Press. 9 The famous American economist and statistician Simon Smith Kuznets noted the Inverted U Curve Hypothesis in income gaps which states that in countries experiencing economic growth, income inequality first increases and then decreases. See Kuznets, S. (1955). Economic growth and income inequality. The American Economic Review, 45(1), pp. 1–28. The Nobel Prize winner Lewis came to the same conclusion in his study on dual economic structure. Kuznets maintains that law, political decisions, and technical advances all play important roles in improving income inequality. 10 According to statistics of the China Financial Yearbooks, the ratio of fiscal revenue against GDP was 12.9%, which is the lowest point since 1978. Right before 1993, China started to adopt a market economy system, and the country amended the Constitution Law to highlighting that, “the country implements the socialist market economy system and the state strengthens economic legislation and improves macro control”. Under

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the pressure of the low ratio of fiscal revenue against GDP and the negative impact it brought, the country carried out large scale tax reforms in 1994. The government used to categorize its functions into four groups: economic adjustment, market regulation, social administration and public services. Economic adjustment and market regulation correspond to macro control and market regulation in economic laws. Musgrave believes that Wagner’s prediction in 1893 was proved to be correct and that increasing role of the public sector had become the decisive feature of the western world. See James M. Buchanan and Richard A. Musgrave. (2000). Public Finance and Public Choice: Two Contrasting Visions of the State, translated by Chengzhao Lei. Beijing: China Finance and Economic Press. The “big history” approach by Renyu Huang emphasizes the induction and synthesis of historical issues in different periods and is more appropriate for the general study of issues that involve a wider time and space range. See Renyu Huang. (1997). Chinese Big History, Beijing: Sanlian Book Store. See Shouwen Zhang. (2002). Periodic Change of Macro Control Law. Peking University Law Journal, 14(5), pp. 695–705. The Central Committee of the Communist Party of China (CPC) issued the central “No.1 Document” concerning agriculture, rural areas and farmers for five consecutive years from 1982 to 1986, having made specific arrangements for rural reform and agricultural development. Also due to the importance of the issue of “agriculture, rural areas and farmers “, the Central Committee issued five consecutive “No.1 Documents” from 2004 to 2008. In addition, in October 1984, the Third Plenary Session of the Twelfth Party Central Committee approved the Resolution on Reform of the Economic System. And the meeting systematically brought forward and illustrated a series of major theoretical and practical problems with regard to the economic system reform, and broke through the traditional concept that put the planned economy in conflict with the commodity economy. It also reasserted that the socialist economy in our country is a planned commodity economy based on public ownership. The concept of controlled economy here is not necessarily the same as pure controlled economy or controlled economics. Influenced by various factors such as Keynesian theory, Japanese theory and wartime state in the 1930s, many scholars (including MA Yinchu) studied the problems of controlled economy. However, in recent years, some scholars have emphasized that controlled economy and planned economy are very close as both reflect the control of the state over many aspects, such as prices and trade. But controlled economy is still different from purely planned economy given that it is framed around the concept of a mixed economy system. See Xiangcai Zhong. (2008). China’s Unified Economic Thoughts in the 1930s and 1940s. Historical Review, (2), p. 33. During the 2008 financial crisis, China also launched a proactive fiscal policy directly based on the successful experience of ten years ago. The policy-oriented characteristics is summed up by many scholars as an important feature of economic law. In particular, the feature is related to the basic attributes of economic law, i.e. economic and regulatory. It is the direct embodiment of modernity that is an essential characteristic of economic law. The “North Paradox” focuses on the financial allocation of the state, while the reverse inference is more concerned with the distribution of individual interests, which can also be considered as two aspects of the same problem. Historically, the development of the UK and the Netherlands has been faster than that of France and Spain in the past two centuries, which is the result of the differences in institutional arrangements for the distribution of individual interests. See Coase, Allchian & North. (1994). The Property Rights and Change of Institution: a Collection of Translation of Works of the Property Rights School and New Institutionalism School, Translated by Shouying Liu, Shang

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Hai: Shanghai Joint Publishing Company LTD & Shanghai People’s Publishing House, p.331. The term “ratchet effects” was originally used to study Soviet Union-style planned economy. Under the planned economy system, the annual production quota for enterprises is based on production in the previous year. Thus, good performance does not lead to good consequences (therefore, wise managers tend to hide the capacity of production to deal with planning authorities). The term “ratchet effect” is used to describe the tendency where the expectation from above increases with the improvement of past performance. The concept of ratchet effect was presented by economist James S. Duisenberg. This theory emphasizes that consumers tend to easily increase their consumption with the increase of income, but do not reduce consumption when income declines. Therefore, the reduction of the level of assumption is irreversible. Chinese ancient politician Siam Gang once said, “It is easy when one’s living condition improves from economical to luxurious; conversely, that becomes hard”. This saying has the same meaning with the term. There still exist many elements that do not conform to the principle of fairness, for the current Enterprise Income Tax Law still differentiates enterprises and imposes different rules on them. See Shouwen Zhang. (2008). The Integration and Limitations of the Corporate Income Tax Law. Taxation Research, (2), pp. 50–53. The shift from appropriation to loan had a huge effect on enterprises. In the planned economy period, when the supplementary capital of state-owned enterprises was appropriated directly from the state finance, the profits of the enterprises were all collected by the state finance too. In the early 1980s, having aimed at improving the efficiency of usage of state capital, the state changed the original approach from direct appropriation to provide loans to the enterprise through banks. Subsequently, in the process of state-owned enterprises (SOEs) reform, the state successively introduced policies that transfer the nature of funds from loans (shifted from appropriation) to the enterprises to the capital of such state-owned enterprises. The shift from appropriation to loan involves the adjustment to the distribution relations between the state and enterprises, and also involves the reform of the financial system. Through these reforms, the state no longer undertakes unlimited responsibilities, and the enterprises began to independently assume their responsibility. The first session of the Eighth National People’s Congress on 29 March 1993 passed the Amendments to the Constitution of the People’s Republic of China: Article 15 of the constitution originally stipulated that “the state implements planned economy based on socialist public ownership. The state ensures the balanced development of the national economy through the comprehensive balance of economic plans and the auxiliary role of market regulation”. Those provisions currently read as follows: “The state implements a socialist market economy. And the state strengthens economic legislation and improves macroeconomic regulation and control”. These modifications are of great importance to both the legal construction and research of economic law. It was replaced by the Township Enterprise Law promulgated by the Standing Committee of the National People’s Congress on October 29, 1996 and the Regulations on Collectively-owned Enterprises of Rural Areas promulgated by the state council on June 3, 1990. The provision emphasizes that economic integration can help to attract material and financial resources of local governments and enterprises to the urgent needs of national construction. It would facilitate the horizontal connection according to economic laws, breaking the territorial and departmental partition and blockage. According to the principle of professional cooperation, it may help to reorganize the industry to avoid the small squeezing the resources of the big, and to avoid repeat construction and blind production. The two provisions aiming to promote economic integration are both related to fiscal and tax issues, which are directly related to distribution.

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26 The 2004 Tax Reform was mainly marked by the transformation of value-added tax in the northeast and the reform was far less spectacular than the previous two tax reforms. If we accept the claim that the year 2004 rushed in the new tax reform, it could be considered as the start of a new “structural tax cut”. Since then, the structural tax cut has been continuous and promoted to further optimize the overall tax structure. 27 The Standing Committee of the National People’s Congress (NPC) and the NPC in 1984 and 1985 respectively made two decisions regarding the authorization of legislative power. This made the legislative authority of the state council to expand significantly. It contributed to solve the problem of insufficient legislation at the beginning of the reform and “opening”. However, without imposing a time limit on the authorized legislation, it could end up having a negative impact. But if there is no time limit of the authorized legislation, it would have a negative impact. At present, its negative effects are becoming increasingly obvious. 28 As Wang Hanbin has pointed out, economic law or administrative law serves to adjust economic relations or administrative relations, which reflect on the way the government manages the economy, the relations between government and enterprises and the relations of internal enterprises. These relations are not economic relations between equal subjects and are, generally, not regulated by civil law. See Hanbin Wang. (1986). An Illustration to the General Civil Law of the People’s Republic of China (draft). [online] Available at: http://www.npc.gov.cn/zgrdw/huiyi/lfzt/swmsgxflsyf/2010-08/1 8/content_1588304.htm [Accessed 20 Apr. 2019]. 29 These three departments are the fastest growing in recent years and they have been intensely researched by scholars. This is related to the needs of market economy development and the completeness of legal construction in these areas. 30 In the early 1980s, the theory of economic law was discussed profoundly. Numerous scholars in multiple areas of law participated in the discussions that gave birth to Chinese economic law theory. See in the compilation: “China Economic Law Theory”, the 1987 edition of the law press, and a number of other research papers. Since 1994, these views have been called “new theories” in academic circles of Chinese economic jurisprudence where some of the representative views of economic law have emerged. See Jiangping Xiao. (2002). History of China Economic Law Theory. Beijing: People’s Court Press. 31 The modernity and nature behind the policy of economic law can be seen in Shouwen Zhang. (2004). The Reconstruction of Economic Law Theory. Beijing: The People’s Press, pp. 227–237. In addition, economic law plays a particularly important role in promoting development, so economic jurisprudence and social jurisprudence belong to the emerging law branch, which is an important part of development law. See Shouwen Zhang. (2005). The Development Law Science and Development of Law Science. Law Science Magazine, (3), pp. 3–7.

6

Beyond the distribution crisis Theoretical extension

In the previous chapter, we discussed distribution problems/crises and the theoretical and practical issues faced by the regulation of economic law in the previous chapters. We take a step further in this chapter to introduce a crisis response theory and to extend economic law theories from various perspectives. First, financial crisis analysis, as a typical distribution crisis, helps not only to understand distribution problems but also to promote the development of economic law theories. To this end, this chapter will analyze the distribution crisis, which will form the basis for the distribution crisis theory, from an economic law perspective. Second, the many problems brought about by economic crisis and the responses thereto have provided an important direction for the development of the rule of law as well as a considerable volume of materials for legal studies, which has provided important support for the theoretical development of economic law. As a result, this chapter will explore the crisis response theory in the field of economic law as an important part of the distribution crisis theory. Third, risk theory is of specific importance to crisis response theory. Considering that distribution risk is closely related to distribution crisis, the study on risk theory can help control distribution risk and prevent distribution crisis. Thus, this chapter will separately discuss risk theory and contemplate it as an important part of the distribution crisis theory. Finally, distribution risk or distribution crisis occurs in the process of economic and social development. All crises are “developing crises” and should be addressed by development. Strengthening economic regulation and improving the rule of law in the economy can prevent and resolve the distributional risk and distributional crisis in development. Therefore, it is necessary to systematically study the issues of distribution, crisis, rule of law and development from the perspective of jurisprudence. To this end, this chapter will further study the crisis response theory from the perspective of “development law” and explore the rule of law issue in distribution and development, thus further expanding the distribution crisis theory.

6.1 Theoretical analysis of distribution crisis The global financial crisis of 2008 has attracted worldwide attention because of its profound and extensive influence.1 The occurrence, expansion and resolution

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of the “distribution crises” such as financial crisis, needs to be analyzed from the economic law perspective because it involves various issues in banking law, fiscal law, competition law and other departments of economic law. To this end, this section analyzes the occurrence, expansion and response of financial crises using economic law theory and demonstrates the value of economic law regulation in solving financial crises. 6.1.1 The occurrence of distribution crisis: an economic law perspective What causes distribution crises, for instance, financial crises? What economic and legal measures should governments take to prevent the occurrence of such crises, and what values do should such measures reflect? Many have given their insights on these questions (Deming Chen et al. 2014).2 The economic law theories explored below may supply the answers. 6.1.1.1 The “two failures” cause distribution crises The emergence, survival and development of economic law are motivated by the continuous need to address market failures and government failures. The “two failures” are a precise indication of reality and have become an important analytical framework in economic law theory. Distribution problems and distribution crises are important manifestations of the “two failures” and are the basic problems that economic law must focus on (Shouwen Zhang 2012).3 The distribution crisis is inextricably linked to market failure. Taking the 2008 financial crisis as an example, as the various financial institutions and general market players aimed to maximize profits, they engaged in a large number of financial innovations and transactions (especially transactions in relation to financial derivatives). In their pursuit of maximum profitability, they tended to neglect social costs and systemic risks and acted blindly under a “curtain of ignorance”. However, people were not ignorant of the blindness and harmfulness of the behaviour of market players, they believed that markets could solve problems before crises occur and that markets allocated resources efficiently, so the government emphasized deregulation and developed a laissez-faire attitude. Market failure caused by information bias, external effects and government failure caused by the lack of government supervision, led to the financial crisis.4 It can be seen that the financial crisis stemmed from “two failures”. To solve the problem of “two failures”, attention must be paid to the contradiction between individuals’ profit and social welfare. This contradiction, as a basic contradiction in economic law, is very prominent in financial crisis. Market mechanism and profit-driven activities may lead to market failure in the financial market or even in the entire economy, increasing financial risks which can evolve into a crisis. To this end, social welfare needs to be viewed from several perspectives – public goods supply, social costs, financial security and stability and economic security and stability.

Beyond the distribution crisis 133 6.1.1.2 Crises highlight the importance of economic law regulation Financial crises call for economic law regulation. One of the goals of economic law is to solve market and government failures by continuously coordinating the contradictions between individual profit and social welfare, which to a considerable extent, can prevent financial crises. China has attached importance to and strengthened the regulation of economic law since 1993. It has formulated and implemented many important banking and financial laws and regulations and has strengthened implementation and enforcement.5 These actions prevented China from being impacted by the 1997 Asian financial crisis, as well as by the 2008 financial crisis. In addition, the regulation of economic law has not only helped to prevent the occurrence of a financial crisis but has helped to effectively withhold and resolve them. The adjustment of the financial regulation law and the financial supervision law can help solve many problems arising from financial crises. Meanwhile, adjustments in fiscal law, tax law, industrial regulation law, price law, investment planning law and many other laws help further solve the financial crisis and the numerous related problems. Whether it is to prevent the financial crisis or solve it, economic law regulation plays a significant role. The occurrence of a global financial crisis has reminded people of the government’s crucial role in crisis response,6 as well as the importance of economic law. From a technique perspective, whether it is to prevent a financial crisis or to solve it, it is necessary to carry out macroeconomic control and market regulation according to law. On the one hand, financial regulation calls for various macroeconomic regulations and control, including fiscal and taxation regulation, industrial regulation and price regulation, etc. On the other hand, it is necessary to strengthen market regulation, especially supervision and coordination of the relationship between financial innovation and financial supervision7 with a view to achieving moderate innovation and appropriate supervision. 6.1.1.3 Crisis and the value of economic law The value of economic law includes its intrinsic utility and external value. Financial crises further highlight the important value of economic law. First, the occurrence of a financial crisis underscores that the intrinsic value of economic law (namely macro-control and market regulation) is not fully utilized in some countries. In fact, the countries with severe financial crises are those with limited financial regulation and supervision, those that depend, to a large extent, on the power of the markets and those that underestimate government’s role. In these countries, significant emphasis is placed on deregulation or non-intervention in the financial sector (Kevin Dowd & Mervyn K. Lewis 2000).8 From the occurrence of financial crises, people have realized that all countries should pay attention to the important value of economic law in ensuring the stability of the overall economic order and promoting stable economic growth.

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Second, the occurrence of financial crises has also reminded people of the limitations of traditional laws. The sound operation and coordinated development of a country’s economy are not possible without coordination between traditional laws and economic law, which help to prevent and mitigate financial crises. Similar to the reconstruction of macroeconomic theory in economics, jurisprudence should also consider the reconstruction of incomplete legal theories that are not expansive enough in scope to accommodate emerging economic law theories and which are ineffective in guiding the development and implementation of the rule of law and related practices in emerging economic law theories. Only by affirming and emphasizing the important value of economic law in the contemporary legal system can we better promote the construction of the legal system and improve the rule of law. Third, the occurrence of a financial crisis also reminds people of the external values of economic law. Generally, the external values of law are the objectives that people wish to achieve through legal adjustment. These objectives, which also apply to economic law regulation, include fairness, efficiency, security, order and justice. If economic law regulation can solve the problem of individual profit and social welfare and take into account efficiency and fairness, then the market failure problem will largely be solved and financial crises less likely to occur; if economic law regulation can solve the problems of market order and economic security, especially the financial order and security, it will help to prevent and resolve financial crises.9 It can be concluded that economic law regulation is of significant value in the prevention of a financial crisis and the response thereto. This is even more so given that regulation protects the interests of financial institutions and other market entities, as well as social and public interests by taking into account individual efficiency and overall fairness, coordinating individual profit and social welfare. These actions contribute to the formation of legal order, ensure financial security and overall economic security as part of achieving the goal of economic law – which is to promote stable economic and social development. It should be emphasized that China must learn from the lessons of previous financial crises and regulate its financial market. In particular, it should regulate illegal fundraising and usury activities, transactions in the real estate and securities markets; and address problems in financial derivatives and asset securitization so as to ensure a sound financial market, reduce financial risks and social costs, and ensure financial security and overall economic security. Nowadays, the economic ties of countries in the world have improved due to globalization, which has also raised the stakes of financial order and security. This means the more difficult it is to maintain financial order and financial security, the more necessary it is to strengthen economic law regulation.    of financial crises from the economic law perspective 6.1.2  Expansion The expansion of financial crises means, on the one hand, geographical expansion (i.e. expansion from one country or region to other relevant countries or regions),

Beyond the distribution crisis 135 and on the other hand, expansion in different economic types or industries (i.e. from the virtual economy to the real economy, and from the financial sector to other industries). The expansion of financial crises can be analyzed through the dual structure theory of economic law. 6.1.2.1 Expansion of financial crisis under the dual structure The “dual structure” theory of economic law emphasizes that due to objective differences,10 there are a large number of dual structures in the economy which directly lead to dual structures in institutions, thereby highlighting the need for an integrated systems solution. From an economic point of view, there are multiple dual structures including the domestic economy versus foreign economy, internal economy versus external economy and real economy versus virtual economy. The expansion of financial crises is directly related to the above dual structures in the economy. For example, in the dual structure of “domestic economy versus foreign economy”, financial crises can expand from one country to another, reflecting the close relationship between the domestic and foreign economies in the context of globalization. For this reason, the adjustment of a country’s economic law must focus on the internal and external economic relations, using legal macro-control and market regulation tools to prevent and resolve related risks or crises. It requires a comprehensive consideration of domestic economic law and international economic law to solve the international financial crisis in an integrated manner. In the dual structure of the “real economy versus virtual economy”, financial crises can spread from the virtual economy to the real economy – a phenomenon that has had considerable impact on the Chinese economy. Overall, the Chinese financial system has not been greatly affected as China’s financial regulation and financial regulatory legal system has become increasingly sound and effective. However, the real economy has been significantly affected due to its high foreign dependence. Because of this, China needs to focus on solving problems in the real economy through economic law and other relevant laws, including adjusting the industrial structure, promoting economic structure optimization, supporting the development of small and micro enterprises and solving problems such as price fluctuation, currency instability and international revenues. Grasping the main contradictions and major aspects of the dual structure is very important for effectively solving various problems arising from the expansion of the financial crisis. The dual structure of “internal economy versus external economy” is also worthy of attention. Usually, attention is paid to the external economy due to trading activities among independent market entities, while less attention is paid to the internal economy dominated by numerous affiliated companies. In fact, the occurrence and expansion of financial crises are often directly linked to the internal economy. When a key part of the affiliated group goes wrong, the whole group may suffer as a result of the chain reaction. In concrete terms, the bankruptcy of the major investment banks in the United States resulted in the collapse of the entire financial system.11 Problems arising in the internal economy need to be solved through economic laws and regulations. The internal

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and external integration of the economic law system can help prevent the occurrence and expansion of financial crises, and the various distribution problems arising as a result. 6.1.2.2 Further thoughts on the expansion of financial crises The financial crisis expansion reflects the complexity and intersections of the economic system. The more economic freedom a market enjoys, the more exposed it is to the outside world; the more dependent it is to the outside world, the higher the possibility to be impacted by a financial crisis and the faster the financial crisis can expand. Therefore, effective regulation of economic law and other relevant laws is required to address the issue of freedom and regulation, to achieve modest openness, to make better use of the two markets and to solve complex problems arising from multiple dual structures.12 Otherwise, there may be distribution problems caused by economic downturns, massive bankruptcies, etc. and further political and legal crises. The occurrence and expansion of financial crises are directly related to the acceptance of neoliberal economic theories in many countries, and the widespread adoption of policies and establishment of institutions that place too much emphasis on deregulation and market mechanisms. This can be roughly verified in the country where the financial crisis originated and the countries that were considerably affected by the financial crisis. From an economic law perspective, the regulation of economic activities and the behaviour of market participants should take into account “dialectical governance”. One of the important characteristics of economic law is to put in place regulations combining positive encouragement/ promotion with negative restriction/prohibition as well as the government macrocontrol and resource allocation by the markets to effectively solve the problem of the “two failures”.13 In order to avoid major financial risks or financial crises, both financial regulations through central bank law and financial supervision by other economic laws such as securities law are needed. In terms of “dialectical governance”, economic law incorporates the Chinese philosophies of Confucianism and Taoism. It not only pays attention to grasping two aspects of contradiction, emphasizing dialectic or “two divisions”, but also highlighting governance in a moderate and effective manner based on the recognition of the main, as well as other major areas of contradiction. The government should emphasize the principle of “administering a big country like cooking a small dish” and “not to toss” in macro-control and market regulation. Based on these concepts, it can be argued that the study of the financial crisis helps to further the understanding of economic law philosophy.14 6.1.3   Responses to financial crises: from an economic law perspective How to deal with a financial crisis or an economic crisis that has occurred and is worsening is a major practical issue that all countries across the world must

Beyond the distribution crisis 137 consider. From the perspective of economic law, in addition to the specific countermeasures, it is also necessary to have a clear understanding of the basic principles for responding to crises, and specify legal obligations and responsibilities, in particular government’s obligations and responsibilities. 6.1.3.1 The basic principles for responding to crises The basic principles of economic law, namely the “legal” principle, the “moderate” principle and the “performance” principle,15 are applicable when in the event of a distribution crisis. First, according to the “legal” principle, all kinds of problems in a financial crisis should be solved in a legal way. For example, despite the urgency of the situation after the crisis, the various countries with more advanced rule of law followed the statutory principle. The US government’s initial $700 billion bailout plan was reviewed by the congress, rather than ordered directly by the White House. This is just an example of the “legal” principle. In addition, the “legal” principle requires not only the legal allocation of rights of relevant entities, interests, duties and obligations but also allocation under the “legal procedures”. The “legal” principle includes both the legal procedure and the legal substance. The “legal procedure” requires that all emergent matters, irrespective of their urgent nature, should be dealt with in accordance with legal emergency procedures. On the other hand, non-emergency matters shall be addressed in accordance with general legal procedures. Only when all matters are handled in accordance with legal procedures can crisis management have a legal justification. This is a way the simultaneous occurrence of a “rule of law” crisis and a financial crisis can arise. China needs to ensure legitimacy when identifying and adopting various rescue plans. For example, China’s RMB four trillion investment plan, of which at least RMB 1.8 trillion comes from financial funds, should be approved by the Standing Committee of the National People’s Representative Meeting.16 In addition, it should be debated whether certain matters including VAT reformer consumption tax adjustment should be subject to public hearing, and approved by the National People’s Representative Meeting or by the State Council.17 In fact, each regulation and control policy involving financial crisis is related to the distribution of interests of relevant entities, and we must conscientiously incorporate the “legal” principles. Second, financial crises should also be solved in accordance with the “moderate” principle. The introduction or adjustment of any regulatory measure or legal system tends to involve the interests of different subjects and affect the choice of market entities, and therefore must be appropriate and moderate. Moreover, since crises equally give rise to opportunities, the adoption of various control measures should not be excessive. “Moderate” is very important and is necessary to prevent government control from going too far.18 To follow the “moderate” principle, it is necessary to identify the issues and respect rules without imposing additional burdens on various subjects. In particular, the application of control measures must be moderate – this includes not only

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the volume of tax reduction, favourable tax treatment, issuance of state debts, import and export scale, but also the adjustment of the export tax rebate rate, interest rates, exchange rates and deposit reserve ratio, etc.19 Furthermore, economic and social sustainable development cannot be overlooked in dealing with a crisis. Attention needs to be paid to the benign operation of the economy when GDP purchase increases. Similarly, attention should be paid to the quality and efficiency of economic development20 as well as to the optimization and adjustment structures during crisis resolution. Finally, the principle of “performance” should also be applied in dealing with crises. The principle of legality and moderation do not reject considerations for efficiency. Control and regulations based on the “legal” principle are an important guarantee for performance; while the “moderate” principle emphasizes the balanced protection of various types of subject rights, it has a direct correlation with performance. In this sense, the three principles can be considered closely linked. According to the “performance” principle, the resolution of financial crises shall be subject to the assessment of performance and effects. Financial crises are, first and foremost, an economic issue which equally involves multiple other factors. The adoption of various types of control or regulation measures economic law must not only take into account economic performance and effects but also social and political performance and effects. Consequently, immediate performance against long-term performance and economic performance against social performance must be balanced in line with the “performance” principle. When a crisis breaks out, the focus tends to be on current interest with less consideration on long-term performance or general interests. Non-economic performances, such as social performance and environmental performance are equally important and closely related to long-term performance. 6.1.3.2 Liabilities in crisis response From a proactive viewpoint, the resolution of a financial crisis requires the promotion of development at the same time as the reduction of adverse effects. It also requires the allocation of liabilities from a passive perspective. The clear allocation of obligations and liabilities and clear rules for punishment and compensation can contribute to preventing or reducing the adverse effects caused by the financial crisis. From a more passive perspective, it can be said that more emphasis is attributed to accountability meaning that attention is diverted from the allocation of liabilities including economic liabilities and non-economic liabilities, as well as government liabilities and market entity liabilities. For example, in the process of resolving financial crises, certain financial institutions and related market entities bear economic liabilities including punitive and compensatory liabilities. Such liabilities are necessary for the protection of the rights, the interests, the normal financial order of pertinent entities. Attention should also be paid to the forms of liabilities, including credit downgrading, qualification cancellation. The credit ratings of many highly rated

Beyond the distribution crisis 139 financial institutions were challenged during the 2008 financial crisis (Peixin Luo 2009).21 Downgrading the ratings of these financial institutions constitutes one way for them to bear financial liabilities. Qualification cancellation can be another form as this means the financial institutions are disqualified from carrying out certain financial businesses and activities. Compensation is as important as punitive liabilities. The credibility and liquidity of many market entities were impacted during the financial crisis, and the compensation they can pay will be limited. The compensation process also tends to consider the priorities of different entities’ rights as well as comprehensive protection of interests, social welfare and private interests. The liabilities also include liabilities for the government. Given the significant public damage caused by financial crises, governments should endeavour to rescue the market that may greatly increase fiscal risks and trigger a fiscal crisis. Iceland was one of the governments that experienced a fiscal crisis after the 2008 financial crisis.22 When the government uses financial funds to save the market, questions arise as to how to use taxes, whether taxpayers should pay for misconducts or even illegal activities of very few market entities and how the government should play a regulatory and supervisory role – a role that further complicates the liabilities issue. 6.1.3.3 Financial crisis and integrated regulation of economic law The system theory of economic law suggests that the coordination and integration of the various departments of economic law will help to better exploit the system’s functions. To fundamentally solve financial crises, emphasis must be put on the integrated regulation of the various departments of economic law. In fact, the departments of economic law solve different macro-control problems and address market regulation from different angles, all of which contribute to the prevention and resolution of financial crises. The problems brought about by the financial crisis were multifaceted. They included significantly reduced demand, overcapacity, difficult business and unemployment. These problems cannot be solved without the regulation of economic law. For example, industry law is required to adjust the industrial structure; price law to regulate all kinds of price behaviours; fiscal law to increase budget; tax law to apply favourable tax treatment and competition law to regulate anti-competitive behaviours. The many laws reflect the realistic needs for solving financial crises and require integration of the various departments of economic law. It is no doubt that in the various departments of economic law, financial law provides the greatest contribution toward the resolution of financial crises. From an economic law perspective, financial law which includes central bank law, commercial bank law, banking supervision law, securities law, insurance law and trust law, etc. have a direct and important role in solving financial crises.23 In addition, international financial coordination and the role of relevant international organizations and international treaties cannot be underestimated. This is because they contribute to fundamentally solving international financial problems in the context of globalization.

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Industrial law, investment law, price law and competition law can help maintain a relatively stable pricing and balanced international payments, all which could boost stable economic growth. Such laws need to be effectively coordinated to form a real legislative system and they should support each other in the integrated regulation of economic law to jointly achieve the overall objectives. This way, financial crises and other forms of distributional crises can be better prevented and resolved. 6.1.4 Conclusion The problems brought about by financial crises are multi-faceted. This section analyzed the occurrence and scope of the financial crises and the responses thereto from an economic law theory perspective. It is not difficult to conclude that financial crises originate from “two failures”; economic law regulation can help achieve multiple values; the expansion of financial crises can be analyzed through the dual structures of domestic economy vs foreign economy, real economy vs virtual economy, internal economy versus external economy, which reveals the importance of “dialectical treatment”; the responses to financial crisis, should follow the “legal”, “moderate” and “performance” principles, focusing on the allocation of responsibilities and liabilities between different entities; the integrated regulation of various departments of economic law can help with the coordination of economic and social development, so as to fundamentally prevent and resolve financial crises. In the above discussion, we look at the issue mainly from an economic law theory perspective that reflects the explanatory power of economic law theory on major practical issues. It will be helpful if we can further explore the other theories from the perspective of economic law as well as other legal theories and other disciplines.

6.2 The theory of distribution crisis: from the perspective of economic law When the 2008 financial crisis was systematically resolved, every country began contemplating how to prevent and resolve new economic crises; how to promote economic recovery; how to effectively compete with each other on a new starting line; and how to strengthen relevant economic legal systems to achieve effective regulation. All the various important questions relate directly to economic law regulation. Therefore, it is very necessary to construct the theory of distribution crisis from the perspective of economic law theory.24 The theory of distributive crisis is an important part of the theory of distribution. Its construction needs to expand its research on international competition theory, risk theory, public economic crisis theory and situation change theory, etc. from the perspective of economic law. At the same time, it also needs to have an existing economic law and specifically via the exploration of its ontology, occurrence and value theories. To this end, the following is a discussion of several theories that need to be expanded as a way of further expanding the scope of exploring economic law theory.

Beyond the distribution crisis 141 6.2.1 Beyond “international competition” The theoretical study of economic law must pay attention to the large number of complex games between various subjects.25 Traditional economic law theory focuses on the interactions between government and nationals. It forms a relatively developed theory of competition law. However, the fact that games are equally important should not be ignored. In fact, in the era of economic globalization, most of the games among countries are played via domestic laws. International games are not only the research object of international law but also an important issue to be considered in economic law theory. Attention must not be solely paid to the competition among market players and competition law, but also to the competing countries. At this juncture, it may be worthwhile introducing the theory of “competing countries”. In order to get out of the crisis as soon as possible, most countries have adopted various means to promote economic recovery. Therefore, there has been high fiscal, tax and currency competition among different countries. For example, in terms of fiscal competition, in order to cope with the economic crisis, many countries have expanded their fiscal expenditures, issued a large number of government bonds, increased government procurement and enhanced the scale of transfer payments as a way to increase consumption power, stimulate domestic demand, boost economic growth and increase international market demand. Accordingly, the expansionary fiscal policy and the related systems have become a common means for fiscal competition. With the gradual recovery of the economy, the negative impacts of fiscal competition gradually appear thereby soliciting comprehensive assessment and prudent supervision. In terms of tax competition, many countries implement large-scale “tax cuts” in order to reboot and recover the economy. As a matter of fact, tax competition has always been an important means for international competition. However, vicious tax competition often has an adverse impact on the interests of a country.26 Tax competition needs to be coordinated to prevent countries from dumping public goods by lowering the price to achieve short-term goals. The dumping of public goods fundamentally damages not only taxpayers’ interests but also government interests and the phenomenon severely affects international competition. In terms of financial competition, various types such as foreign exchange rate competition (where many countries devaluate their domestic currency) and currency competition (where some countries try to compete for currency dominance) are not uncommon. Meanwhile, many countries have reflected on the deficiencies in their financial regulation and reacted by strengthening regulation in interest rates, deposit reserve ratios and other financial aspects, in an effort to achieve moderate currency supply. Since financial competition and related financial regulation and supervision directly affect the level of development and quality of the real economy, the focus tends to shift to financial competition, in particular, “currency wars”,27 and believes that financial competition is essential for economic development. The various types of competition mentioned above lead to many problems. For example, fiscal competition focusing on expanding government expenditures may

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result in significant deficits which tend to bring about severe problems in the public economy and lead to income crunch of related groups. Such a scenario has the tendency of triggering protests, strikes and further doubt in the legitimacy28 of the government and its implementation capability thereby exacerbating economic, social and political crises. In terms of international competition, there are many economic law issues worth studying. For example, international competition is directly related to the capabilities of a nation or a country. This means several questions need to be answered. They include: how does a country turn its will into reality? Which international competition is considered legitimate competition, and which is unfair competition? Does reducing the exchange rate constitute a subsidy, and how does it relate to exports? Does it complement the adjustment of economic structure? Also, given the importance of the order for international competition, how do countries form competition rules and abide by relevant rules to prevent conflicts and even wars? One of the important goals of international competition is to promote or achieve stable growth of the domestic economy, which is consistent with the objectives of a country’s economic law. The maintenance of stability has a direct bearing on employment, population, environment, resources, energy, social security and many other issues, and relates to the coordination of economic goals and social goals in economic law, all of which need to be studied in depth from an economic law perspective. In summary, to build a theory of distribution crisis, we need to expand research on “international competition” theory. Countries can be considered as rational entities given that they each have political, economic and other interests. This means some of the theories and principles for market competition can be introduced into the study of international competition. Thus, “international competition theory” should take into account not only basic problems such as the types and means of competition but also the objectives, means, order, liabilities, powers and other issues of international competition from an economic law perspective. 6.2.2 Beyond the risk theory The academic community should pay attention to general economic risk, analyze specific risk types, explore risk prevention measures in economic law and reveal the intrinsic relations between risks, crises and security and further refine the “risk theory” of economic law given the intrinsic relations between distribution risks and distribution crises and how imperative it is to prevent and resolve crises. The risk theory is separate since it is particularly important to analyze risk allocation issues. 6.2.3 Beyond the “public economic crisis” theory The division between private economy and public economy means economic crises can also be divided into two aspects, namely “private economic crisis” and “public economic crisis”. In the past, more attention has been paid to “private

Beyond the distribution crisis 143 economic crises”, the usual starting point of most economic crises. However, “private economic crises” may also lead to “public economic crises”, which, may, in turn, affect the resolution of the “private economic crises” or lead to a new “private economic crises”. For example, since the 2008 financial crisis, many countries have adopted public economic policies to resolve private economic crises. The policies, including increases in government expenditure, issuance of national debts, tax reduction, expansion of transfer payments or increases in social security expenditures all constitute public economic means. However, economic means tend to substantially increase fiscal deficit, which is the most direct cause of “public economic crisis”. Each country should take deficit increases and the resulting debt crises as serious issues.29 In order to reduce the deficit and to prevent the “public economic crisis”, EU member states tried to tighten government spending by strictly abiding by the Stability and Growth Pact. However, this affected their investment in the private economy resulting in weak economic growth in Greece, Spain and other countries. The debt crisis in these EU countries has caused widespread concern in countries around the world. The US is also plagued by the debt crisis, and many cities are on the verge of bankruptcy.30 With the emergence and aggravation of a “public economic crisis”, all countries are faced with questions including whether to raise taxes, issue additional currency and how to deal with inflation and other prominent issues each of which affects public economic security and needs to be addressed by applying the “public economic crisis” theory in economic law. In the past, economic law scholars paid more attention to the impact of the private economy on public economy, emphasizing the importance of the private economy as a base of the economy or the dependence of the public economy on the private economy. However, nowadays, the public economy has become so large that its impact on the private economy cannot be ignored. This is also an important economic base for a country’s macroeconomic regulation and control and market regulation. Given the important influence of the public economy on the private economy, legal regulations on the public economy should, in particular, strengthen legal control of government budgets31 – especially state investment and government procurement. In addition, both substantive laws and procedural laws must be clear and enforceable so as to better ensure the effective allocation of rights and powers and achieve comprehensive protection of the various legal interests. 6.2.4 Beyond “clausula rebus sic stantibus” Economic crises tend to have an important impact on the economic activities of private entities, as well as the economic plans of governments. Since it is difficult to foresee economic crises when parties carry out economic activities, the outbreak of a crisis can significantly change circumstances.

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Since changes in circumstances affect the economic activities of private entities, private laws including contract law have recognized the principle of “clausula rebus sic stantibus”. Similarly, given its impact on government economic arrangements, public law should adopt similar principles. In view of the fact that the government’s economic arrangements are closely related to economic regulation, it is necessary to further study the principle of “clausula rebus sic stantibus” in economic law. For example, as a significant change of circumstance, economic crises can bring many legal issues in fiscal and tax law. These include budgetary adjustments, budget priority changes, tax changes and special government bond issuance. In order to cope with economic crises, many countries use fiscal and taxation methods to rescue the market and extensively adopt measures such as expanding budgetary expenditures and reducing taxes thereby causing the deficit to surge and generating many unstable factors that affect sustained economic growth. The many fiscal and taxation issues relating to change of circumstances are worth studying. Economic crises, as a change of circumstances, turn balanced budgets into unbalanced budgets thereby soliciting the reallocation of funds. According to the relevant jurisprudence, a change of circumstance occurs after a budget is approved but before it is fully implemented; and a change of circumstances should be a significant change involving the adjustment of the budget of the central government. A change of circumstance makes the original budget unfair or unenforceable. Economic crises make the budget obligations difficult to perform and change the basis for payers’ payment for taxes and fees. Under such circumstances, it is undoubtedly necessary to adjust the size and structure of the budget. This embodies the spirit of “substance over form”, i.e. the essence of economic life is higher than the original budget balance. In short, as far as economic activities are involved, there may be problems with a change of circumstance. As an important public economic activity, fiscal and taxation activities are also affected when circumstances change. Therefore, the principle of “clausula rebus sic stantibus” should be extended beyond private law to cover a wider general jurisprudence. The expansion of the scope of the “clausula rebus sic stantibus” principle in economic law needs to analyze jurisprudence on change of circumstance and explore whether it can be universally applied to the relevant fields of economic law. In addition, such an analysis should investigate whether there may be special issues in its application. This will contribute to the development of economic law theories and the improvement of specific legislation in economic law. 6.2.5 Existing economic law theories should be further developed The economic cycle has become the norm in economic operation. It is necessary to further explore and improve existing economic law theories by developing a crisis theory. Because these theories closely relate to the normative and

Beyond the distribution crisis 145 operational theories of economic law, we will use the ontology, embryology and axiology of economic law as examples to briefly explore existing economic law and its impacts on the formation of a distribution crisis theory. First, from the ontology of economic law, the occurrence and spread of economic crises have shown the limitations of market regulation and the necessity of government regulation. However, people have also seen limitations on the role of the government in such regulation. It is based on the perception of market failure and government failure, and the important role of law in solving the “two failures” that people are more aware of the importance of economic law. From an economic history perspective, market failure can lead to economic risks and economic imbalances, which may further lead to economic crisis. To this end, macroeconomic regulation and control and market regulation are required. This is also an important reason for strengthening economic regulation as a way of preventing a distribution crisis. If macro-control and market regulation are illegal or if they violate the spirit of the rule of law, they will inevitably lead to more legal problems. Therefore, regulating government control and supervision activities is an important task and mission of economic law. Economic law also regulates government acts. One of the characteristics of economic law is its ability to resolve economic crises due to its economic and regulatory nature. In addition, economic development, whether in the post-crisis era or at various other stages, requires economic law norms with encouragement and promotion functions that are consistent with most “promotion-type” economic laws.32 In practice, people often interpret macroeconomic regulation as “tightening” and “repression”, especially in the real estate market and capital market regulation. In fact, regardless of whether the regulation of an industry or field falls into “macro-control” in its original sense,33 regulation should reflect its normative nature and emphasize “discrimination” given the two dimensions or aspects of regulation itself. Second, from the perspective of embryology, economic law originated from the economic crisis of the 1930s and developed with the emergence of macro-control law. Macro-control law was originally a law of crisis countermeasure. However, because of the evitability and frequent occurrence of the economic cycle, macrocontrol law has changed from an “extraordinary” crisis countermeasure law to a “normal” law that endeavours to ensure economic stability. The modern market economy is an important premise and basis for the emergence and development of economic law. If risks in the market economy do not lead to economic imbalances, and the market mechanism is capable of resolving major economic operation problems on its own, there will be no necessity or possibility for the development of economic law. It is precisely the complicated economic life and the resulting cyclical economic crises (caused by uneven distribution) under the modern market economy that require higher levels of macroeconomic regulation and market control and therefore, economic law that differs from traditional sectoral laws. Third, from the perspective of axiology, economic law emphasizes the promotion of stable economic growth as well as the prevention and resolution of

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economic crises. Given the intrinsic consistency between the objectives and functions of economic law, we should pay attention to the design and effective implementation of economic law as a way of utilizing its risk mitigation functions to the maximum extent to solve economic imbalances and prevent severe economic crises. To this end, the three principles embodying the value of economic law, namely the “legal” principle, “moderate” principle and “performance” principle, should be strictly implemented. The “legal” principle requires that regulation and control should abide by the “legal” principle and to avoid violations.34 The “moderate” principle requires macroeconomic regulation and market regulation to be appropriate and moderate; in particular, it requires a sound relationship between governments and markets and the respect of economic law. The “performance” principle requires the economic regulation system to be conducive for stable economic development and to prevent irrationality in the economy. The various regulatory methods of economic law should be used to adjust economic structures, promote scientific planning and development and achieve overall economic efficiency and benefits.35 In order to enhance the effectiveness of regulation and control, and to solve specific problems in crisis response, it is necessary to have a comprehensive and dynamic understanding of the “legal” principle and to reflect on the requirements of the three principles. In addition, the legal procedures for regulation and control, and the degree of regulation and control should be further studied in the distribution crisis theory. 6.2.6 Conclusions In the post-crisis era, all countries have paid great attention to strengthening economic laws and regulations. At the same time, economic law theory should be extended and further studied. This is especially helpful in the construction of distributional crisis theory in economic law, as well as the perfection of economic law theory and system. In this section, we have briefly discussed several important theories that deserve significant attention in the study of economic law, including international competition theory, risk theory, public economic crisis theory, and change of circumstance theory. These theories all contribute to the normative and operational theory of economic law. We have also briefly discussed certain issues from the perspectives of ontology, embryology and axiology of economic law. The integration of such theories into distribution crisis theory improves the guiding effect of economic law theory in dealing with the crisis.

6.3 Risk theory and the prevention of distribution crisis The distribution crisis is directly related to the distribution risk. That means to better prevent distribution crises, it is necessary to conduct further research on

Beyond the distribution crisis 147 risk theory. Both the distribution crisis or general economic crisis and economic law regulation call for the study of risk theory. Risk dimension, as distribution dimension, is an important meridian that runs through theoretical research and the institutional construction of economic law.36 To study the risk theory related to distribution crisis, we need to pay attention to risk issues, analyze the special types of risks, explore risk prevention measures and the inherent relations between risk, crisis and security in economic law, and refine the “risk theory”. This will shed light on distribution risk as well as the relevant prevention and mitigation measures. 6.3.1 Risk issues in economic law Risk usually refers to certain uncertainties or the possibility of loss. Since risks are common and it is human nature to avoid harm, economics, sociology and many other disciplines have undertaken in-depth studies on the issue of risk.37 From an institutional economics perspective, one of the functions of laws and regulations is to address the uncertainties brought about by risks. Solving risk problems and preventing and mitigating crises resulting from the accumulation of risks are important objectives of laws and regulations. Different legal systems need to face and solve different risk issues. For example, civil and commercial laws should address transaction risks; administrative law, administrative risk; procedure law, litigation risk; and trial risk. The need to address risk issues has driven the formation and development of relevant legal systems. Economic risks and social risks faced by modern countries are increasing, that explains why economic law and social law are required to prevent and resolve the risks. It is necessary to use economic law in view of the numerous “complexity” and “uncertainty” problems in economies. In fact, the various departments of economic law are addressing risks issues in their respective fields. For example, fiscal risks in fiscal law, financial risks in financial law, industrial risks in industrial law, price risks in price law, competitive risks in competition law and consumer risks in consumer protection laws. All these laws have a direct relationship with national interests and social welfare, and they affect overall economies as well as the legitimate rights and interests of related subjects. The academic community has analyzed the various types of risk issues mentioned above. For example, the fiscal risk of fiscal law is been found to directly relate to excessive budget expenditure, excessive debt burden, excessive tax burden or insufficient taxation. This implies that it is necessary to effectively resolve the excessive deficit, excessive debt dependency and unfair tax burden issues while the resulting unsustainable tax collection requires strengthening the legal regulation of the budget law, the national debt law, and the tax law. The topic of financial risk has attracted the most interest in economic law. Considerable research in relation to credit and liquidity risk in banking law and the various types of risks in securities law and insurance law can be important risk theory indicators for the entire economic law. In short, risk issues are the subject of all kinds of law. The fact that economic law aims to prevent and control risks

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underlines the necessity to study the specific categories of risks, explore the commonality and particularity of various types of risk control measures and lay the foundation for refining the risk theory in economic law. 6.3.2 Types of risks in economic law Generally, there are different types of risks including natural risks, social risks, political risks, economic risks, moral risks, legal risks, property risks and personal risks. Such categorization of risk helps with the study of risk issues in economic law. However, it is necessary to further explore the types of risks in economic law by taking into account the particularity of economic law. The criteria for categorizing risks vary due to the commonality and diversity of risks. In terms of the entities involved, based on the dual structure of subjects in economic law, risks may be divided into regulators’ risks and regulatees’ risks. Risks faced by commercial banks, securities companies, insurance companies and other types of businesses are regulatees’ risks. Strengthening risk prevention and control for important market players that affect the national economy and people’s livelihood help to prevent greater market risks and to ensure overall economic security. Regulators’ risks are equally important. As an entity involved in the public economy, the government needs to maintain payment balance. In particular, to prevent fiscal risks and financial crises, the government needs to moderate the scale of transfer payments and government procurement, the scale of taxation and the issuance of bonds. The prevention of tax risks requires optimizing the tax design. The prevention of financial risks requires moderate currency issuance by the central bank, as well as moderate financial supervision. Preventing and controlling the risk of regulators relies on the effective regulation of economic law. These two types of important risks in economic law also imply or correspond with the following types of risks: macro risks and micro risks, overall risks and individual risks and public risks and private risks. Regulators should pay special attention to macro risks, overall risks and public risks, while regulatees naturally focus on micro risks, individual risks and private risks. The emphasis of economic law on holism is consistent with its focus on macro, overall and public risks. When micro, individual and private risks attain a certain level, they may evolve into macroscopic, overall and public risks. Therefore, economic law must be specifically designed to address all kinds of risks and, with regard to supervision, emphasized by various special market regulation laws, it is crucial for economic law to pay attention to the most significant areas that affect the national economy and the livelihood of individuals. Associated with these risk types, from a behavioural perspective, the risks of regulators and regulatees may correspond with the division between regulation risks and countermeasure risks. Regulation risks usually involve systemic risks, while countermeasure risks are generally non-systematic risks with the tendency of evolving into systemic risks. They both need to be addressed in economic law and reflected in risk prevention systems.

Beyond the distribution crisis 149 6.3.3 Risk prevention systems in economic law The various risks mentioned above may damage public interests and affect the benign operation of the economy and society; therefore, economic law should set out risk prevention and control systems so as to guard against the accumulation, occurrence and expansion of risks and to ensure economic security. Many important laws in China have highlighted risks in their legislative purposes. For example, the Law of People’s Bank of China stipulates that the People’s Bank of China shall formulate and implement monetary policies to prevent and resolve financial risks and maintain financial stability. The legislative purpose of the Banking Supervision and Administration Law is to strengthen supervision and management of the banking industry, standardize supervision and management behaviour, prevent and resolve banking risks, protect the legitimate rights and interests of depositors and other customers and promote the healthy development of the banking industry.38 Based on these objectives of prevention and control of financial risks, the Law of People’s Bank of China further stipulates that whenever banking institutions experience payment difficulties that may lead to financial risks, in order to maintain financial stability, the People’s Bank of China, with the approval of the state council, has the power to inspect and supervise banking institutions.39 The Banking Supervision and Administration Law also stipulates many specific systems, including supervision, early warning and risk management, as well as internal control.40 Similarly, the Commercial Banking Law stipulates that banks follow the principles of security, liquidity and efficiency, and establish and improve their risk management and internal control systems. There are also a large number of risk prevention and control systems in the Securities Law and Insurance Law. In addition to the specific risk prevention and control systems,41 there are also many substantial risk prevention and control measures in the specific legislation of China’s economic law. These measures include the reserve fees in the Budget Law, deposit reserve in the Law on People’s Bank of China, important commodity reserve as well as price monitoring and intervention in the Price Law.42 The important consideration for setting out these risk prevention and control provisions is to get ready for risk prevention and mitigation. It can be seen that risk prevention and control are not uncommon in economic law. These systems play an important role in effectively reducing risks in various fields, preventing and resolving distribution crises arising from risk accumulation, and ensuring economic security. 6.3.4 Risk, crisis and security in economic law In the complex games of various subjects, there are a lot of uncertainties which tend to increase the risk of various entities. Economic and social imbalances caused by market failures are not only a result of risks but also a cause of further risks. In a high-risk social environment, it is crucial for economic law to continuously reduce risks, prevent crises resulting from excessive risks and ensure economic and social security.

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In terms of risk, crisis and security, the various institutional arrangements of economic law aim to prevent and control various risks, including distribution risks, during economic operation. Where risks accumulate and accelerate to economic crises, safeguards provided in the economic law system can contribute to resolving such crises. Economic law is called “risk prevention and control law”, “crisis countermeasures law” or “security assurance law” because it prevents and controls risks, resolves crises and ensures economic and social security. As an emerging modern law, the fact that economic law can prevent and control risks and resolve crises is directly related to its regulatory objectives. Maintaining stable economic growth, ensuring economic security and promoting sound operation and coordinated development of the economy and society appear consistent with the purpose of economic law – though such a view has never been discussed from a risk, crisis and security perspective. The risk dimension is helpful for a comprehensive understanding of the purpose and value of economic law. In particular, it is necessary to analyze the specific systems in various fields of economic law from a risk, crisis and security perspective. As far as specific systems are concerned, there are multiple important issues that need to be resolved by economic law. These include fiscal risks, crises and security in fiscal law; tax risks, crises and security in tax law; financial risks, crises and security in financial law; industrial risks, crises and security in industries law; and competition risk, crises and security in competition law. The above risks, whether at the macro or overall level or at the micro or individual level, may accumulate, evolve into crises and affect overall security. Some economic law systems have taken these risks, crises and security issues into account while ignoring other areas of importance. It is necessary to further clarify the direction and specific areas for future improvement. Take fiscal law, for example. Here, it is necessary to improve the rules for balancing and adjusting budgets and keeping a moderate deficit and debt size in order to standardize the budget, so as to standardize the process for budget review and execution, and issuance and recovery of the national debt. For tax law, as the fairness of tax burdens affects tax risks in tax collection and taxpayers’ compliance risks, it is necessary to put in place reasonable and legal tax laws. For competition law, as enterprises’ competition risks, especially compliance risks (such as unfair competition and monopoly risks), are common, it is necessary to have clear and detailed systems for competition regulation. Furthermore, the breakout of financial crises indicates that there are many shortcomings in the coordination of the current financial law and other laws, which calls for improvement of the laws and regulations for financial risks prevention and control. Risk prevention and control laws and regulations should effectively define the rights and responsibilities of relevant subjects in risk prevention and control, stipulate the obligations to assist or coordinate, establish an effective accountability system and related mechanisms for early warning, monitoring, control and mitigation of risks. On the other hand, systemic coordination needs to be enhanced to mitigate risks and to avoid a situation where financial crises are paid for by public finance (Shangxi Liu 2006).43 It is necessary to extract risk prevention and control

Beyond the distribution crisis 151 principles and refine risk theory in economic law based on the practice of relevant laws and regulations. 6.3.5   Refining risk theory Risk theory is a general theory which relates to risks in economic law practice. It is necessary and possible to define risk theory in economic law based on the above understanding of risk issues, types of risks, specific risk prevention and control rules and the relationship between risk, crises and security. Risk theory helps to explain the creation, purpose, value and means of economic law and the specific institutional structure of economic law from a risk perspective. At the same time, the risk theory also helps to explain why economic law is considered as risk prevention law, crisis countermeasure law and security assurance law and it extends the understanding of crisis countermeasure law.44 The various risk issues can be solved, to a certain extent, if the risk theory in economic law can be explored to: (1) guide the construction of specific risk prevention and control rules, (2) determine the various risks and their causes and expansion routes when establishing specific rules and (3) decide relevant countermeasures to risk. The various risks in economic law can theoretically be categorized into risks involving relevant subjects and their behaviours – be they be macro, holistic and public, microscopic or individual and private. These risks may cause or aggravate market and government failures, affect economic stability, have an impact on effective economic operation and even result in a systemic crisis. To this end, it is necessary to construct various types of risk prevention and control rules in economic law, to prevent related risks and to resolve economic crises caused by the accumulation of risks with a view to ensuring economic security and achieving the overall adjustment objectives of economic law. Risk theory in economic law should at least include risk categorization, risk prevention and control rules, as well as norms for risk prevention and control. Risks categorization helps to come up with special types of risks in economic law, thus laying a foundation for the construction of special rules. Risk prevention and control rules help to reveal the particularity of the risk prevention and control mechanism in economic law. Social norms for risk prevention and control should include subjects, behaviours, rights, obligations and liabilities. The general risk theory involves theories in relation to the generation, nature, purpose, function, value and other aspects of economic law extracted from the risk dimension. In addition, risk theory is intrinsically linked to information theory. The information society is also a risk society. In order to solve the risks brought about by information uncertainty, many information disclosure systems need to be established in economic law to protect the right to information, including the right to information regarding taxpayers, investors, consumers and regulators. Such an information disclosure system plays an important role in preventing and mitigating risks. When studying the risk theory of economic law, we should also keep an eye on the study of information theory.45

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6.3.6 Conclusion Economic law can be analyzed from the risk dimension, whether in institutional construction or jurisprudence. Since risks directly affect the interest of relevant subjects, the risk dimension is the basic dimension for the study of not only economic law, but also the issue of distribution. Risk issues, special risks in economic law, and risk prevention and control rules, as well as the relationship between risk, crisis and security, can help to extract the risk theory in economic law, analyze relevant issues in relation to distribution risk and distribution crises.

6.4 Distribution crisis theory in the jurisprudence of development law Distribution crises can also contribute to the construction of the jurisprudence of “development law”. The issue of distribution is one of the important topics for development economics, development sociology and development jurisprudence, given its importance in economic and social development. In order to prevent distribution risks, resolve distribution crises and effectively solve distribution problems, it is important to change traditional ideas into law, fully understand the value of development law and build distribution crisis theory in studying development law. This requires that a distribution crisis be considered from an economic and social development perspective with the aim of solving the economic and social imbalance. Since distribution crises are first and foremost an economic crisis, the distribution crisis theory in economic law is more fundamental and important. The distribution crisis in development law focuses on the relationship between distribution crises and the rule of law, crisis and development. To this end, this section will examine distribution crises in discussions of the issues related to development law. 6.4.1 Why is development law important? The sayings that “development is the absolute principle” and that “development is the first priority” shows China’s emphasis on development.46 Development is both a goal and a means. Since the various problems faced by human beings and the resolutions needed are directly linked to development, disciplines such as development economics, development sociology and development political science have been devoted to development issues.47 Previous legal studies do not appear to have fully explored the notion of development issues as various disciplines in jurisprudence are based on the division of different legal departments (especially their subjects), rather than on the objectives of laws. Taking into account the objectives of laws, there can be a discipline of “development law”, just like development economics, development sociology and development political science.48 Legal studies on development law will, from a legal perspective, contribute to thoroughly understanding the various issues – for example, modernization issues

Beyond the distribution crisis 153 and distribution crisis – which affect economic and social development. Traditional laws focus on the allocation of rights and obligations as well as the micro-level resolution of disputes but few have contemplated long-term development at the macro level. Modern laws should pay more attention to influencing the economy and society by promoting development via legal regulation. Economic law and social law can be largely categorized as “development law” giving the increasing concern for development, the significance of development as the objective of legal regulation and the ubiquity of development problems in economic law and social law.49 The development of laws is inseparable from development law. Economic law is an important development law. Economic and social laws are departments of law, but development law is not. Rather, it is categorized based on its objectives. Research on development law helps to better understand economic law and related research. 6.4.2 Impact of development or distribution outlook on development law Development jurisprudence focuses on development problems and aims to promote development. Special development jurisprudence focuses on economic and social development, and general development jurisprudence also focuses on political and cultural development. Although development jurisprudence is still evolving and given that economic and social development are the most important goals for every country, development jurisprudence also focuses on economic and social development. Special development jurisprudence focuses on the government’s role in development while general development jurisprudence can also include other subjects’ roles. Limiting development jurisprudence from the macro- and long-term perspective meets the current needs better and is more important at the current stage. Development jurisprudence is directly connected with development outlook (including, more specifically, the outlook on distribution). A country or nation must have its own developmental ideology. If a country or a nation does not see development problems or does not take them seriously, it is unlikely to achieve substantial development. Where the outlook on development is unclear and incorrect, there are problems and it is impossible to form a reasonable system to promote development. Furthermore, there is the absence of a fair and reasonable distribution system. In certain historical periods of China, little attention was paid to development problems. Economic and social development was put aside in the days when politics was overly emphasized while distribution problems relating to development and relevant distribution rules were overlooked. Lessons from history attest to the fact that neglecting development and distribution problems lead to negative effects on the construction of relevant distribution systems and result in distribution risks and distribution crises. On the eve of China’s reform and “opening”, enormous distribution pressures and prominent distribution problems had had a serious impact on the development of the country. Therefore, reform and “opening” began with the reform of distribution systems.

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Historically, human understanding of development issues has gradually deepened. Previous laws mainly focused on survival issues, especially personal rights and property rights,50 the protection of which is associated with distribution systems designed to effectively achieve such protection in relevant distribution systems. With the advancement of human society, there has been the gradual realization of the importance of development issues and development rights as an important human right (the Declaration of the Right to Development being a typical example). Therefore, the adjustment of the distribution systems must be consistent with the aim of protecting development rights. As far as a country is concerned, without development, there is no way out and it will fall behind in international competition. Many developing countries have advocated for their rights to economic development (Shouwen Zhang 2001)51 on the international stage, demanding the establishment of a truly equal new international economic order. At the same time, many countries have begun to advocate for open policies, to attract foreign investment through various means (such as “tax competition”), to strive to change the distribution pattern and distribution order and to promote the development of their economies and societies. In this process, all countries have formed their own approach to development, with varying implications on the establishment and development of the distribution system and development law. In fact, across different historical periods, countries have had very different outlooks on development, especially directly relating to distribution. Countries tend to shift from ignoring to emphasizing development and developed countries usually have more advanced outlooks on development than developing countries. Relatively speaking, at a given time and place, it is possible to compare different outlooks on development and make a distinction between good and bad, correct and incorrect and advanced and backward. In fact, it is the difference in the outlooks and practices of development that result in differences in the levels of development and income distribution. As a result, it is very important to establish an appropriate outlook on development. The outlook on development often directly affects institutional development and thus affects human economic and social practices. From the perspective of institutional economics, a country’s policies and laws are rules and systems for human behaviour. A country or nation’s outlook on development often directly affects its internal and external systems52 of policies, laws, ethics, customs and of course distribution systems, which, in turn, affect people’s behaviour and practice. The differences in the level of development of individual countries are largely due to institutional differences, including the distribution systems. It is clear that the outlook on development has a direct impact on distribution systems and the theory of development law. This means that a correct and advanced outlook on development or distribution has a positive and huge impact on institutional development and legal jurisprudence. Since different countries or nations have commonalities in their outlooks on development or distribution, they also have similarities in development jurisprudence. On the other hand, due to the different levels of development, development tasks, development goals and development paths in different countries, their institutional construction is naturally

Beyond the distribution crisis 155 unique with each country having its own characteristics in the specific distribution systems and development jurisprudence. Based on the above understanding, outlook on development has a direct impact on the emergence and development of economic law, and outlook on distribution affects the formation and change of the relevant distribution systems, and then influence economic law jurisprudence. Similarly, outlook on development is reflected in relevant legal theories – even though they manifest in different ways in these theories. Studies on the differences help to explain why outlook on development is reflected more in economic law theory, why development law has its own territory and characteristics and why research on development law can promote the development of the entire law. 6.4.3   Distribution problems under the review of different legal theories As mentioned earlier, outlooks on development and distribution have an important impact on the emergence and development of development jurisprudence. Multiple development-related systems, including the distribution system, are important institutional foundations for development jurisprudence while the understanding of researchers with regard to development issues constitutes the cognitive basis for development jurisprudence. It should be emphasized that the researcher’s own outlook on development or distribution cannot be ignored because it has a direct impact on the study of specific development jurisprudence.53 In order to carry out a general analysis, it is necessary to divide laws into traditional laws and modern laws. With the development of the modern economy and society, laws that focus on solving outstanding modern problems produced by modern society have been enacted, for example, economic laws and social laws can be classified into modern law. Laws that existed before modern law are categorized as traditional laws because they bear different economic, social and legal characteristics. Among the various legal theories, it is the modern law theory (in particular economic law) rather than the traditional law theory that directly focuses on the distribution or overall development problem. This helps to understand why the distribution theory, and more specifically, distribution crisis theory, should be studied in economic law and, especially, as part of the emerging development law. Traditional laws focus on specific people and things at a specific time and place, emphasizing the resolution of local problems, local disputes and local contradictions. In other words, traditional laws focus on providing individualized solutions to micro-level problems. However, with economic and social development, overall and general problems that lie beyond the scope of traditional laws, also need to be resolved. Traditional jurisprudence focuses on subjective survival at a specific time and place, while modern jurisprudence or development jurisprudence emphasizes the issue of sentient beings There are aspirations of a higher level of development, even though survival remains fundamental. With the changes in the issues of concern in traditional and modern laws, the goals, structure and functions of laws have continued to experience changes.

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Therefore, it is necessary to emphasize that laws have changed and are changing; so are the connotation and extension of laws. These changes are real although they may not have been perceived in certain legal professions. The direct result of the above changes helps update the legal systems and redrawing of the entire legal map. Both the development of laws and jurisprudence are mainly driven by problems. With rapid economic and social development, traditional legal theories are obviously insufficient to resolve the many complicated emerging issues. Therefore, modern law theories – including economic law theory – are relied upon to provide corresponding explanations. Traditional law theories can explain local and static problems, but they are ill-designed to provide explanations of holistic and dynamic development problems. Since economic law is faced with a series of “unbalanced dual structures”, it must solve the problem of imbalance in development on the basis of realistic differences, achieve a general equilibrium on the whole, and ensure equality and fairness in distribution. This means economic law theory is more explanatory on overall and dynamic issues, especially complex distribution problems.54 It can be seen that different types of legal theories place different emphasis on distribution or development problems. Unlike modern legal theories, tradition legal theories focus less on distribution or development problems. The laws are significantly influenced by outlooks on distribution or development. Making a general distinction as above at a macro level helps to better understand the impact of outlooks on distribution or development and on development jurisprudence. It also explains why modern laws focus more on distribution problems, and why considerable importance is attached to the study of the distributing crisis theory in the field of development law. 6.4.4 Development jurisprudence should pay attention to the relationship between distribution and economic legal theory The core issue in development jurisprudence is how to use economic law and other legal systems to promote economic and social development. Therefore, special attention should be paid to various issues – including the distribution problem – that affect development. On the other hand, given the prominent blockade effects of distribution crisis on the economy and society, it is necessary to study distribution crisis theory in development jurisprudence. Considering that economic law regulation is the most important in solving the distribution problem and preventing distribution crises, the relationship between distribution and economic law theory should be clarified when formulating distribution crisis theory in the field of development law. As mentioned earlier, as early as hundreds of years ago, Étienne-Gabriel Morelly and T. Dezamy proposed that “economic law is the [sic.] distribution law” thereby revealing the importance of economic law in solving distribution problems. In fact, distribution is closely related to various theories of economic law, including the embryology, ontology, axiology, normative, and operational theories.

Beyond the distribution crisis 157 The questions that need to be asked from an embryology perspective are the following: (1) why is economic law needed? (2) What are the economic context, social foundation and legal bases for economic law? Many people may think that the modern market economy, the highly detailed social division of labour including the resulting market failures such as monopoly, external effects, public goods, information bias and unfair distribution have created the necessity for the government to cure market failures. However, the main question that arises remains: how to cure government failures? The answer to this question can be found in economic law designed to remedy the shortages of traditional civil and commercial laws. In fact, many norms are directly related to distribution, whether wartime control laws, crisis countermeasures laws, or the usual macro-control laws and market regulation laws. The solution to the distribution problem is an important driving force for the emergence and development of economic law. Therefore, in the formulation of the distribution crisis theory in development law, it is necessary to fully consider the theory of “two failures” and “two imbalances” as important theoretical bases. From the perspective of ontology, most of the academic community believes that economic law adjusts the relationship between macroeconomic regulation and control and market regulation. The adjustment of the above relationship is itself a process intended to distribute income, wealth, resources and rights, and it is directly related to distribution. The formation and development of the two major components of the economic law system – macro-control law and market regulation law – are inseparable from distribution. Whether it is macroeconomic regulation or market regulation, whether it relates to relationship adjustment or legal construction, the ultimate purpose is to solve distribution and development problems. The characteristics of economic law – economics – is directly related to economic policy, economic leverage and the pursuit of economic benefits. The legalization of economic policy or the legalization of economic leverage as a specific policy tool are processes of distribution and directly related to distribution. In fact, in order to effectively promote economic and social development, it is necessary to organically combine positive incentive promotion measures and negative restriction prohibition measures to achieve the fair and effective distribution of income, resources and wealth, etc., and strive to solve the problem of distribution or redistribution in the process of development to prevent distribution crisis. Accordingly, in the formulation of distribution crisis theory, the regulatory measures provided by economic law should be taken as an important means to prevent distribution crisis. From the perspective of axiology, values such as efficiency, fairness and order pursued by economic law are directly related to the problem of distribution. In particular, value judgments regarding distribution efficiency, fairness and order directly affect the stable development of the economy and society. The legislature intended for economic law to achieve financial goals including price stability, adequate employment and payments balance, are all closely related to distribution. The purposes of economic law also include social goals such as social welfare and basic human rights. In addition, the highest goal of economic law adjustment is

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the benign operation and coordinated development of the economy and society (Shouwen Zhang 1994).55 If the problem of distribution is not solved and distribution risks and crises cannot be effectively prevented and resolved, all the purposes and goals cannot be achieved. Therefore, from the pursuit of value to the specific purposes of economic law, the distribution problem remains at the core. It can be said that “there is no good development without good distribution”, but the determination of “good” or “bad” here involves value judgment. When constructing the distribution crisis theory, there is the need to fully consider the relevant value objectives, to identify “bad” distribution that leads to distribution crises and to ensure that distribution leans toward “good” in the process of development. From a normative theory perspective, the behaviour, rights, obligations and liabilities of relevant subjects under economic law all relate to distribution and they form many specific distribution systems including a budget system, national debt system, fiscal transfer payment system and tax incentives system, etc. In fact, the specific systems of economic law – fiscal or taxation system, banking and financial system, planning system, competition system or consumer protection system – all involve the distribution of wealth, income, rights and interests. In the study of normative theory, attention should be paid to distribution problems. Accordingly, in the construction of distribution crisis theory, attention must be paid to the problems of various specific distribution systems which constitute the institutional roots of the distribution crisis. To effectively prevent and respond to the distribution crisis, the above-mentioned types of distribution systems must be constantly improved. At the same time, the theory of right-obligation structure, and responsibility and liability structure should be treated as an important part of the distribution crisis theory. In terms of operational theory, the entire economic law system operates to better address outstanding problems, including distribution problems, in economic and social development. The operation of economic law in the broad sense includes every aspect, from economic law legislation to enforcement. It is necessary to consider distribution from the very beginning of the legislative process. In fact, the reform of many distribution systems (such as public finance system, budget system, national treasury collection and payment system, transfer payment system, government procurement system and taxation systems, etc.) aims to promote distribution equity, to resolve distributional risks and distribution crises, and to promote economic and social development. These systems, which are aimed at promoting development, reflect the way legislators understand the issue of distribution. Generally, deciding which areas should be supported, incentivized, expanded or restricted by government is a process of “distributions” that is reflected in relevant legislation. The legislations involving distribution, when implemented or enforced, can play their role in adjusting the distribution relationship and promoting the development of the national economy and society. Therefore, when formulating the distribution crisis theory, it is necessary to pay full attention to the problems inherent in the operation of the distribution system, especially the problems in legislation and enforcement, and to analyze their likelihood of triggering a distribution crisis.

Beyond the distribution crisis 159 The book is only a brief description of the relationship between distribution and economic law theory, which highlights the main concerns of a distribution crisis theory in the field of development law. As a matter of fact, distribution theory in the field of economic law provides important theoretical support for the study of distribution crisis theory in the field of development law. If social imbalances, social risks and social crises in the field of social law are incorporated into the future, and distribution problems are appraised from a social perspective, distribution theory and distribution crisis theory, in the field of development law, maybe further enriched and developed. In addition, since distribution and outlooks on distribution are related to various parts of economic law theory and they run through the entire theory of economic law, distribution in the field of economic law is crucial to the formulation of distribution crisis theory in the field of development law. To this end, it is necessary to emphasize the following factors. First, the multiple dual structures involved in economic law theory are directly related to distribution. For example, the “economy-institutional” dual structure, which includes the urban-rural dual structure, the east-west dual structure, and other contradictions, needs to be coordinated with a focus on the problem of distribution. Overall, attention needs to be paid to coordination because the economic and social development of different regions and different fields tends to be reflected through the complex distribution problem. Economic law has persistently been developed based on an outlook that emphasizes the “coordination” and “consideration” of the above-mentioned dual structures, the resolution of distribution problems, the prevention and diffusion of distribution risks and distribution crises and the realization of coordinated and sustainable development of the economy and society. This outlook is of importance to the prevention and resolution of distribution crises, and the construction of a distribution crisis theory in the field of development law. Second, as more knowledge has been gained regarding the market economy, it is necessary to distinguish between economic growth and economic development. Adjusting economic law does not solely mean focusing on economic growth. Rather, economic development and the coordination of economic, social and environmental development all need to receive equal attention. Accordingly, it is necessary to solve the problem of efficiency and fairness in distribution, to ensure stable economic growth and to guarantee the quality of economic development. The development of distributional crisis theory in the field of development law needs to emphasize the issue of efficiency and fairness, especially the fairness and justice of distribution. Third, economic law has outstanding modernity compared to all traditional sectoral laws. Economic law is a law that seeks to resolve economic problems arising from the functioning of modern market economies. The development of the modern market economy is consistent with the modernization process of various countries. In the process of modernization, what strategies need to be adopted? What needs to be done to exercise comparative advantage and latecomer advantage? How can the effective allocation of resources through effective

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modulation be achieved? Finally, how can the coordination of economic, social, environmental, and other aspects be properly incorporated in institutional designs and practices? In the modernization process, it is also crucial for many countries to effectively solve distribution problems and to cross or bypass the “middleincome trap”. Economic law can effectively solve the multiple complicated distribution and development problems of modern society. To develop the distribution crisis theory in the field of development law, the modernity of economic law, as well as relevant functions involved in solving various modern problems need to be fully understood. At the same time, a detailed analysis needs to be undertaken regarding the particularity of the distribution crisis in modern society in an effort to enable the distribution crisis to keep pace with changing times. The various problems in modern economic and social development are also the subject matter of development economics and development sociology.56 Development jurisprudence needs to focus on the problems of both the developed and developing countries while paying attention to the “coordination” of the two types of countries. During the development process, countries face unidentical problems as illustrated by the economic cycle arising from distribution problems. Economic law plays an important role in the counter-cycle. The cycle of economic law systems has a certain relevance to economic cycles, social cycles and political cycles (Shouwen Zhang 2002).57 Its important role in ironing our economic cycles based on the needs for economic development is irreplaceable by other laws. 6.4.5 Economic law, development law and the development of law Law and jurisprudence are changing. A right and advanced outlook on the development, the combination of actual economic and social development, and the transformation of traditional legal concepts and legal structure are required for developing jurisprudence. In the process of reconstructing jurisprudence, it is necessary to further emphasize the important role played by development jurisprudence in promoting the development of jurisprudence as a whole. The study of development law, therefore, enhances the transformation of the methodology and paradigm for jurisprudence and also triggers a series of innovations in specific theories and rules. For example, in the past, research on traditional law focused on specific personnel at a specific time and place while ignoring macroscopic development issues. Development law, represented by economic law, based on development, was dedicated to solving problems in development (including prominent distribution issues). It not only focuses on Hayek’s so-called “judicial law” (Hayek 2000)58 but also on “on-judicial law”. Development jurisprudence focuses, over a longer time and wider space, on issues at a more macro-level involving unspecified subjects. Development jurisprudence has transcended the relevant disciplines that used to be divided based on specific sections of law theory and has even surpassed the division of domestic economic law and international economic law, thus forming a high-level discipline. “Homogeneity” or “no difference” is an important assumption for traditional civil law theory. It is the basis for civil relations in which civil law can adjust

Beyond the distribution crisis 161 equal subjects. However, there are huge differences in economic and social fields, from subjects to objects and from powers/rights to duties/obligations; there are also huge differences in the specific time and space dimensions of law enforcement. This is especially true in distribution. Therefore, from the perspectives of economic and social development, the combination of horizontal equity and vertical equity, and substantive justice, it is necessary to emphasize the notion of “difference”. Development law should pay more attention to “differentiation” given that it is significantly influenced by public policies including economic policies and social policies (this is also an important feature of modern law)59 and considering the concept of “no policy without difference”. Emphasis should be put on substantive fairness, rather than on the mechanical application of the law in order to better solve the various problems (especially distribution problem) that constantly arise from the dynamic operation of the economy and society. Development jurisprudence is directly related to the overall development of law. In the past, it was argued that the direct influence of jurisprudence on economic and social development is less than that of economics and other related disciplines. However, practice has shown that many studies in jurisprudence can also have a direct impact on economic and social development. In particular, the understanding of relevant laws has become deeper and more comprehensive with the increasing importance of economic law and social law. With further research, it will become possible to refine fundamental issues of jurisprudence, or common problems of development in various disciplines. This way, a basic framework will be formed toward the development of jurisprudence. This will also help to promote the development of the economy, society and other fields. In particular, it will lead to better coordination and sustainable development in various fields as well as the achievement of higher goals. Developmental jurisprudence has long been in existence despite the absence of a name to describe it. Various problems in China’s economic and social development, such as unfair distribution, agricultural problems, social security and macro-control issues are all challenges that could be studied under development jurisprudence. Further integration of research on the above issues from the perspective of development jurisprudence can effectively solve the development problems of the world’s largest developing country by promoting development more comprehensively and systematically. The solution for these problems, especially the resolution of related distribution problems, can promote the development of jurisprudence more vigorously and may promote Chinese jurisprudence in the globe in the course of resolving the many development problems in China. 6.4.6 Conclusion As the largest developing country, China takes development as its top priority. Realizing the country’s prosperity is also an important issue that jurisprudence research should address. As the state attaches great importance to development

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problems, especially to distribution problems, research on these issues from the legal perspective is inevitably an important topic of sustainable research. This is an unparalleled opportunity to deepen the development of jurisprudence research and development as well as the construction of distribution theories in the field of law. There is still a lack of in-depth discussion on the basic issues of the development jurisprudence and the discussion above is simply an effort to illustrate some particularities of development jurisprudence and to explore the potential of distribution crisis theory in the field of development law. This is more so, taking into account the influence of outlook on development on development jurisprudence, the focus of different types of legal theories on distribution, and the association between economic law theory and distribution. Outlook on development and the related outlook on distribution affect the development of relevant legal rules and jurisprudence. A correct and advanced outlook on development and distribution plays a positive role in promoting institutional development and legal development. In solving, preventing and responding to distribution crisis, the impact of relevant value factors must be considered. At the same time, solutions should be provided to issues related to distribution, development and the rule of law under the guidance of a correct outlook on development and distribution. It is also important to develop a theory of distributional crisis in the field of development law. Both economic and social law have developed based on common economic and social foundations. They have a positive effect on solving the “two imbalances” brought about by the “two failures”. From the perspective of interdisciplinary studies, “development jurisprudence” – a new subject based on economic law and society law focusing on major problems in society and economy – may supplement traditional research and bring legal study into a new era. As far as the emerging development jurisprudence is concerned, there are still many problems for further study. The basic theoretical framework needs to be further developed in related disciplines. This means it can only be reasonably determined with changing traditional legal concepts in academic circles in order for the framework to be reasonably determined. The development of law is inseparable from development jurisprudence. The in-depth study of development jurisprudence can solve some theoretical problems in the development of modern law as well as solve problems that traditional law cannot effectively solve. In particular, development jurisprudence can prevent and respond to distribution risk and distribution crisis. Although there are still many problems with development jurisprudence itself, it needs to be promoted in the long run as a way of promoting the development of law. The study of development jurisprudence involves the four interrelated aspects that this book focuses on, namely distribution, crisis, rule of law and development. In fact, this book not only puts forward some thoughts on the theory of distribution crises from an economic law perspective but also tries to integrate these four aspects from through the lens of development law. It is believed that with the increasing emphasis on distribution issues and distribution crises and

Beyond the distribution crisis 163 rule of economic law or economic regulation, development law will have a comparatively greater impact thereby fostering overall research in legal research.

Notes 1 The crisis is described as a “once in a hundred years” crisis. It is the largest crisis since the Great Depression of 1929, so at least, we can call it “once in eighties” crisis. Its impact is extensive and profound because it results from the superposition of multiple economic cycles. 2 See Deming Chen et al. (2014). Economic Crisis and Reconstruction of Rules. Bei Jing: The Commercial Press, pp. 52–63. 3 Shouwen Zhang. (2012). Economic Law. 2nd ed. Beijing: Renmin University of China Press, p. 9. 4 The excessive expansion of financial institutions, the lack of self-discipline in financial institutions and rating agencies, the misalignment of macroeconomic policies in certain countries, and the mismatch between financial regulatory capabilities and financial innovation are important reasons for the financial crisis. Among them, the first two aspects are related to market failure, while the last two are related to government failure. 5 In the spring of 1993, China amended the constitution to stipulate that “the state strengthens economic legislation and improves macroeconomic regulation and control”. Since then, in order to promote the development of the market economy, financial and banking legislation has been greatly strengthened since 1995, and a systematic central bank legal system and commercial banking law have been formed. 6 The United States and many countries in Europe have adopted large-scale rescue measures. Some measures (such as direct funds to financial institutions or purchase of stocks of certain financial institutions) are even considered as nationalization. Some people think this is the arrival of the “big government” era. 7 The relationship between financial innovation and financial supervision is a concrete manifestation of the relationship between market and government. Accordingly, the prevention and resolution of financial crises calls for adequate coordination of the relationship between savings and consumption and the relationship between virtual economy and real economy, all of which require a comprehensive adjustment of economic law. 8 The relaxation of financial regulation is closely related to financial innovation, technological progress, public interests, private interests, and political processes. See Kevin Dowd and Mervyn K. Lewis. (2000). Current Issues in Financial and Monetary Economics, translated by Yulu Chen, Bei Jing: China Tax Publishing House, pp. 153– 156. 9 After the 2008 financial crisis, China’s Supreme People’s Court issued various documents to strengthen the regulation of China’s financial market, ensure enterprises’ development in accordance with law, and fully safeguard social harmony and stability. See Weidong Ji. (2009). Judicial Responsibility in the Economic Crisis, Caijing Magazine, 229(1). 10 The principle of differences is an important principle of economic law, and an important basis for the theory of dual structures. It is precisely because of the differences that there are dual structures and make the theory of dual structures possible. 11 For example, after the bankruptcy of the Lehman Brothers and a few international insurance companies, a number of financial institutions went into turmoil. For more on the financial crisis, see Xingyun Peng and Jie Wu. (2009). From the Subprime Mortgage Crisis to the Evolution and Diffusion of the Global Financial Crisis. Economic Perspectives, (2), p. 52.

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12 Dynamic investigation should be conducted on whether the degree of freedom and openness are moderate and how to make appropriate adjustments. This will make it possible to better utilize both domestic and foreign markets and solve many problems arising from the internal and foreign economies. 13 Some are of the view that government has obvious advantages in correcting market failures. See Jeseph E. Stiglitz. (1998). The Economic Role of the State, translated by Bingwen Zheng. Beijing: China Materials Press, pp. 74–77. 14 As economic law is a relatively new area, sufficient research has not been undertaken in the area of economic law philosophy. However, as various branches of economic law become fully understood, the study of economic law philosophy should be reinforced to better promote the development of various branches of economic law. 15 See Shouwen Zhang. (2008). Economic Law. Beijing: Renmin University of China Press, pp. 63–65. 16 Increasing expenditures may be an appropriate measure. However, adjustment to the government’s budget should be approved by the legislature, rather than the executive meeting of the state council. 17 The change of VAT from production type to consumption type will resolve the financial crisis, but these adjustments should strictly follow the legal taxation or the legal reservation principle. 18 The RMB four trillion investment plan has not only been criticized in terms of its being not “legal”, but in terms of its economic effects. The “three-phase superposition” including the resulting economic effects and economic structure adjustment, is an important manifestation of China’s economy entering the “new normal”. 19 After the financial crisis, China has adjusted for a number for times, the export tax rebate rate, interest rate and deposit reserve ratio to cope with the import-export balance, mitigate financial risks and stimulate domestic demand. There are also different views as to whether the above practices are appropriate. 20 In the post-crisis era, China paid more attention to the optimization of economic structure and the quality of economic development. GDP worship and assessment were greatly diluted, which is undoubtedly an important progress. See Jianwen Luo and Mingjun Deng. (2007). Ethical Analysis from GDP Worship to GNH Care. Studies in Ethics, 28(2), pp. 52–58. 21 The lack of self-discipline in financial institutions and rating agencies has led to distortions in risk information and asset valuation, which are important reasons for the financial crisis. See Peixin Luo. (2009). Improvement of Legal Liability of Credit Rating Agencies in the Post-Financial Crisis Age. Law Science Magazine, (7), p. 5. 22 Some people believe that the bankruptcy crisis in Iceland was caused by the confrontation between the dollar and the euro. If that is true, attention should be paid to international financial competition and legal coordination. 23 The role of relevant financial regulation and control laws should not be ignored. For example, in response to the Great Depression of 1929–1933, the US Congress passed the Glass-Steagall Act in 1933 that restricted the business of banks. The restriction later evolved into the separation of banking, securities and insurance businesses. However, in November 1999, the US Congress passed the Financial Services Modernization Act which abolished the Glass-Steagall Act and weakened financial regulation. See Xiaomin Chen. (2000). The Banking Law in the United States. Law Press, pp. 54–56. The outbreak of the 2008 financial crisis made the strengthening of financial supervision necessary. Consequently, in June 2010, the US Congress passed the most rigorous Dodd-Frank Act. 24 There are many studies on economic law systems related to the economic crises, but the reflection on economic law theory in the post-crisis era is relatively lacking. The latter is very important to enrich and develop economic law theory. 25 For a detailed discussion of analysis framework of game behaviors, see Shouwen Zhang. (2004). Reconstruction of Economic Law Theory. Beijing: People’s Publishing

Beyond the distribution crisis 165 26

27 28

29

30 31

32 33

34

35

36 37

38 39 40

House, pp. 154–162; Shouwen Zhang. (2009). General Economic Law. Beijing: Renmin University of China Press, pp. 10–11. International tax competition has long attracted the attention of the international community. In order to avoid vicious tax competition, the EU and the OECD called for the establishment of a vicious tax criteria in 1997 and 1998 in order to minimize its adverse effects. The Tax Deduction and Employment Act passed by the US Congress at the end of 2017, is believed to have triggered a new international tax competition. For example, Hongbing Song’s Currency War and his other works on the same subject have attracted attention. Similar problems have arisen in many European countries. In order to fulfill the obligations of international law to control deficits under the Stability and Growth Pact, a number of countries have experienced problems affecting economic stability and social harmony, especially in countries such as Greece. Two years after the 2008 financial crisis, the Chinese government’s deficit has increased sharply amounting to more than one trillion yuan. With the launch of other crises response measures and the deeper understanding of the deficit issue, China has tried and only partially succeeded to gradually reduce the deficit scale since 2011. Detroit officially filed for bankruptcy protection on July 18, 2013, making it the largest bankrupt city in US history. On November 7, 2014, US federal judge Steven Rhodes ruled on Detroit’s bankruptcy plan. Since 2004, China has been in the process of amending the Budget Law. On August 31, 2014, the National People’s Congress Standing Committee passed the decision to amend the Budget Law. One of the important objectives of the law is to strengthen legal control over budgetary expenditures. See Shouwen Zhang. (2009). On Promotion-Type Economic Law. Journal of Chongqing University (Social Science Edition), 14(6), pp. 103–106. The main task of macroeconomic regulation and control is to maintain the balance of economic aggregates, promote the coordination of major economic structures, mitigate the impact of economic cycle fluctuations, prevent regional and systemic risks and achieve sustained and healthy economic development. Therefore, preventing and defusing economic risks and economic crises is an important task of macroeconomic regulation and control. For example, the four trillion yuan government investment involves budget adjustment and should be approved by the Standing Committee of the National People’s Congress in accordance with the provisions of China’s Budget Law. However, this huge investment has never undergone a statutory approval process, and many people have already criticized it. Habermas focused on the effects of the late capitalist crisis in the political field, emphasizing the existence of a dual crisis of legitimacy and rationality in the political field. See Jürgen Habermas. (2000). Legitimation Crisis. Translated by Beicheng Liu. Shanghai: Shanghai People’s Publishing House, pp. 63–68. In terms of economic regulation, attention should also be paid to preventing challenges posed by rationality and legitimacy. The distribution dimension is of great significance to theoretical research and the institutional construction of economic law. The risk dimension is equally important. There are many research results in risk economics and risk sociology. Frank H. Knight. (2010). Risk, Uncertainty and Profit. Translated by Jia An. Beijing: Commercial Press; Ulrich Beck. (2004). Risk Society: Towards A New Modernity. Translated by Bowen He, Nanjing: Yilin Press. These studies have inspired the research on risk issues in economic law. See Article 2 of the Law on People’s Bank of China and Article 1 of the Banking Supervision and Administration Law. See Article 34 of the Law on People’s Bank of China. See Articles 13, 21, 23, 24, 27, 28, 29 and 38 of the Banking Supervision and Administration Law.

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41 See Articles 4, 59 and 64 of the Commercial Banking Law. 42 See Articles 27 to 32 of the Price Law. 43 See Shangxi Liu. (2006). Macro Financial Risks and Government Fiscal Responsibilities. Beijing: China Financial and Economic Publishing House, p.11. 44 The academic community has long referred to economic law as “crisis countermeasure law”. But it is relatively narrowly interpreted. By combining with the risk and security dimensions, it is possible to extend the understanding of crisis countermeasures. In fact, given its close relationship with risk prevention and control, economic law always contains crisis countermeasures. 45 In this sense, information is also an important dimension for economic law. Studies on information theory and rules in economic law can also benefit the study of information law. 46 The decision on reform in 2013 specifically stipulates: “we must comprehensively further reforms, adhere to the strategic judgement that development remains the key to all the problems in China”. Both the comprehensive reforms and rule of law involve development. 47 These disciplines have substantial existing materials and can provide valuable reference for legal studies. 48 For the introduction of the concept of “development law”, see Shouwen Zhang. (2001). Basic Hypothesis of Economic Law. Modern Law Science, 23(6), pp. 44–53. 49 The economic and social functions of modern countries are of paramount importance. How to promote the benign operation and coordinated development of the economy and society through the study of development law is an important issue faced by government. 50 For example, civil law, criminal law and even constitutional law focus on basic rights such as personal rights and property rights which, to certain extent, are survival rights. Generally speaking, traditional law is more of “survival jurisprudence”, rather than a “development jurisprudence”. 51 See Shouwen Zhang. (2001). Basic Hypothesis of Economic Law. Modern Law Science, 23(6). 52 See Wolfgang Kaper and Manfred E. Streit. (2000). Institutional Economics: Social Order and Public Policy, translated by Chaohua Han. Bei Jing: Commercial Press, pp. 36–37; Aoki Masahiro. (2001).Comparative System Analysis. Translated by Li’an Zhou. Shanghai: Shanghai Far East Publishing House, p. 6. 53 For example, China used to unilaterally pursue GDP, but did not pay enough attention to social development and environmental protection. Some researchers are advocating for an alternative development pattern that may impact China’s outlook on development. 54 See Shouwen Zhang. (2004). Reconstruction of Economic Law Theory. Beijing: People’s Publishing House, p. 23. 55 See Shouwen Zhang. (1994). On the Purposes of Economic Law. Peking University Law Journal, 31(1), pp. 31–34. 56 There are many topics in the fields of development economics and development sociology. See Chongtai Tan. (1999). New Developments in Development Economics. Wuhan: Wuhan University Press; Tiankui Jing. (2000). Social Development and Social Development in China. Beijing: Learning Publisher. 57 See Shouwen Zhang.(2002).Of Periodic Evolvement of Macro-control Law. Peking University Law Journal, 14(6), pp. 695–705. 58 Hayek believes that the earliest political laws that legislators involved in fiscal laws that are different from general juridical laws. See Friedrich August von Hayek. (2000). Law, Legislation and Freedom (Vol. I). Beijing: Encyclopedia of China Publishing House, pp. 213–214. 59 See Shouwen Zhang. (2000). On the Modernity of Economic Law. Chinese Legal Science, pp. 56–64.

7

Conclusion

This book outlines the issues related to distribution crises, beginning with the theories of economic law. As the distribution crisis is caused by distribution problems, this book explores how to promote economic and social development by regulating economic laws in the framework of the rule of law. In particular, the book addresses four interrelated and consistent concepts namely: distribution, crisis, rule of law, and development. The discussions of these issues not only contribute to theories and the system of economic law from the perspective of distribution but also provide an analysis of the distribution problems and crises from the perspective of economic law theories. On this basis, this book briefly summarizes and explains some basic understandings – thus forming and further reflecting on the problems that remain to be solved.

7.1 Basic points 7.1.1 Summary of basic propositions Through the discussions in the previous chapters, a number of basic understandings are formed and briefly summarized as follows. Issues of distribution are major issues that every country in the world must endeavour to resolve. The book provides cautions about distribution crises – the extreme manifestations of the distribution problem – and calls on all countries to pay attention and formulate responses. The global financial crisis and the overall economic crisis in 2008 once again showed that it is important for all countries to take distribution problems seriously and manage with them efficiently. Since the reform and opening of China, its economy has grown rapidly but uncoordinated, unbalanced, and unsustainable problems have also arisen in various areas, especially in the area of distribution. Thus, countries need to ensure the successful management of distribution problems, especially those relating to wide income gaps and unfair and unbalanced distribution – while also striving to achieve social equality and justice. In addition, distribution problems place significant stress on state finance and downgrade the livelihood of individuals. In a

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word, the major issues that China continues to confront and needs to resolve are about preventing distribution risks and resolving distribution crises. To solve the distribution problems and prevent the distribution crises, it’s necessary to constantly improve the national governance system and enhance the ability to govern. For instance, it is essential to safeguard the distribution order by advancing the rule of law, to prevent economic and social imbalances caused by unbalanced distribution, and to avoid the legalization crisis. It is by reinforcing the rule of law in the area of distribution that a sound and coordinated development of the economy and society can stimulate progress in all sectors. When promoting the rule of law in the field of distribution, it is very crucial to strengthen economic laws and regulations. In practice, when resolving various distribution problems and preventing distribution crises, most countries mainly adopt two methods – policy and law. Economic law, with its special function in distribution and redistribution and its promotion of norms that have the ability to solve distribution problems, has been an important regulatory tool used by all countries to resolve distribution problems and prevent related crises. To solve general distribution problems or to prevent distribution crises, it is necessary to strengthen the national coordination of distribution relations and to optimize the law in distribution structure. Meanwhile, in optimizing the distribution structure, the general structure of the law itself is also optimized. In fact, the process of China’s reform and “opening” is, in a certain sense, a continuous process during which the distribution structure is optimized by constantly directing the focus of economic policies and economic legal systems towards “distribution”. In addition, the relevant laws and regulations of the economy have also been continuously improved due to the pressure and motivation to resolve distribution problems. Based on the basic understandings of the distribution problems and crises, as well as the elementary considerations on the rule of law and development in the area of distribution, it’s possible to refine the distribution category, construct an overall distribution theory, abstract the concrete distribution crisis theory, and combine it with the theory of distribution in social law to construct the distribution crisis theory in the field of development law. These theories help to resolve empirical problems in the field of distribution and to enrich theories related to law. 7.1.2 Basic views and conclusions further explained Those basic understandings have been drawn from the clues and arrangements of the book. As mentioned earlier, this book analyzes the distribution crisis through the lens of economic law theory which thus involves two closely connected themes – the distribution crisis and the theory of economic law. Firstly, the distribution crisis itself is the cause of, and also one of, the distribution problems. Therefore, the book focuses on the distribution problem and further discusses how to solve all kinds of distribution problems based on their diversified causes some of which include the unbalanced distribution structure, the disparities in distribution, and the inequitable distribution. The book also

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analyzes the necessity and feasibility of strengthening corresponding economic laws and regulations. In various sections, the book discusses relevant practices and theories in response to distribution crises. The book not only focuses on how to deal with and resolve the distribution crisis but also examine show to prevent its occurrence. For example, given that distribution crises ex-post, ex-ante prevention could be significant compared to a more passive response. The discussion of the distribution crisis centres around the fiscal crisis and the financial crisis because of their great influence on the country and on the people. As a matter of fact, the effective prevention and resolution of the fiscal and financial crises have a direct impact on economic, political and social stability as well as on the livelihood of people and the peace and stability of countries. Secondly, this book mainly focuses on analyzing distribution problems, risks and crises from the perspective of economic law theory. At the same time, it explores the emergence and development of economic law theories from the perspective of distribution and analyzes the issues of distribution throughout all economic law theories and systems. This means the book equally reflects on theoretical issues of economic law with a view to resolving distribution problems and the distribution crises. In fact, economic laws and regulations are vital to distribution problems in that they help to prevent crises. This book attempts to further develop the theories of economic law, including theories pertaining to distribution structure optimization, distribution regulation, distribution crisis etc. by analyzing the influence of economic law on distribution crises. In addition, studies on the theories of constitutional distribution, national competition risk, and developing law, among others, are also worthy of attention. The perspective of distribution should not be overlooked when considering other branches of economic law. Studies on how to coordinate various aspects of distribution using economic laws, especially the macro regulation and market regulation that are beneficial to good distribution, may contribute to the effective resolution of problems while contributing to the development of theories of economic law.

7.2 Extension of the topics Based on the above fundamental understandings, this book attempts to observe and examine economic law theories and systems from the perspective of distribution and to formulate a new understanding of economic law. To this end, the book begins with distribution issues but also explores the necessity, feasibility, rationality, and legitimacy of economic law regulation, as well as its possible problems and limitations. The analysis contributes to understanding the existence and development of economic law, the driving force and goals behind the changes in economic law systems, and the methods to develop economic law under the rule of law. The analysis also contributes to promoting the theory and system of construction as well as economic law research methods. Furthermore, it is necessary to further reflect on the aforementioned understandings.

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7.2.1 Promoting the theoretical development of economic law A perspective on distribution problems or crises reveals many links between the distribution crisis and the theory of economic law – a study of which contributes to the development of economic law theory. Here are some examples: Firstly, there are intrinsic links between distribution issues and the emergence of economic law. Market failure forecasts the emergence of economic law while the distribution problem is an important manifestation of distribution issues Although distribution problems have existed in varying degrees since ancient times, given the different proportions of various factors in the initial distribution, the distribution gap caused by the market economy has been widened and, in the modern era, more attention has been paid to unfair distribution, distribution imbalance, and economic imbalances. All these problems may lead to general disequilibrium and even create economic crises. As a matter of fact, economic crises are merely a synonym for the distribution crisis. Thus, the economic law, as a crisis countermeasure law or a “countercyclical” law, must play an important role in resolving distribution problems and preventing and coping with the distribution crises. Secondly, distribution crisis management is affiliated with the values of economic law. It is almost impossible to shield value judgments from the relevant research. For example, ensuring fair distribution and realizing distribution justice are important values to be pursued through economic laws and regulations. In order to secure steady growth, and prevent and resolve economic crises, it’s necessary to solve the distribution problems and ease the tension between individual profitability and social welfare which require the balance between efficiency and equality. After all, only by coordinating these value goals can one avoid prominent distribution problems and prevent the distribution crisis. Thirdly, distribution crises affect the construction of distribution theory of the economic law. Even though it is generally acknowledged that “economic law is also distribution law”, study of the latter has nevertheless been long neglected. To construct a distribution theory in economic law, it is necessary, on the one hand, to review all previous research on distribution problems, especially on distribution crises, and to refine important distribution principles and distribution categories. On the other hand, it is necessary to pay more attention to the particularities of distribution crises in the fields of economic law and social law so as to construct distribution crisis theory in economic law. Both of these approaches contribute to the multi-dimensional expansion and comprehensive explanatory power of the distribution issues and crises of economic law theory. Last but not least, there are interactions between distribution crisesand economic law regulation – particularly regarding whether macro- or micro-changes in the economic law system have an immediate impact on distribution. The legitimacy of the system and the rule of law’s influencein economic law, especially the legal basis for economic law system changes, the delegation of the legislative power, and the protection of individuals’ rights are of equal prominence. Therefore, economic law-makers should follow the principle of legality in order to realize long-term peace and stability through economic law.

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In short, through the lens of distribution, economic law can be regarded as both the “economic law of distribution” and the “distribution law of the economy”. This means economic law should dedicate itself to making distribution more economical, rational, efficient, and fair by handling the links between production, exchange, consumption, and distribution. In addition to distribution, other factors that affect economic law should never be ignored. 7.2.2 Emphasis on the structural analysis methods Although a variety of research methods have been covered in the previous discussions, it’s necessary to emphasize the method of structural analysis given that distribution issues themselves are structural issues. Structural analysis applies to the hierarchical structure of various types of entities or to the revenue and expenditure structure of state finance, macro distribution structures, and the structure of rights and interests in a specific distribution system. For this reason, it is necessary to pay attention to the structural imbalance existing in the distribution system when solving the distribution problem. In the entire theoretical study of economic law, structure analysis occupies the central stage. This also highlights the growing importance between the structure and function.

7.3 Limitations and problems for further exploration The issues are nuanced given the complexity of the distribution system. This study, even with its multi-dimensions and given the fact that it is a synthesis of various theories and research methods, still has its limitations. This book focuses on the analysis of distribution crises from the perspective of economic law theory, but exhaustive research will still span beyond our discussion. In addition, though economic law comprises norms from several legal branches, all of which affect the distributional problems to varying degrees, this book was not intended to investigate each of them and could not estimate all the relevant theories. It is, nonetheless, relevant to scrutinize the shortcomings of this book. For example, there have been conflicting opinions about whether the existence of uneven distribution or a distribution gap can increase economic growth. There has been continuous argument about if economic laws and regulations can resolve distribution problems in an all-round way as well as effectively preventing and overcoming distribution crises; and if so, to what extent. Apart from the debates surrounding the effects or limitations of economic laws and regulations on distribution issues, there is still a need for in-depth discussion of the theories of distribution, on specific distribution crises in economic law, and on distribution crises in the development of jurisprudence. The theoretical construction of distribution and the effectiveness of distribution regulation are far from complete and they require further fine-tuning. This book merely outlines the framework of distribution crises – the rule of law – development thread, beginning with theories of economic law and exploring the

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distribution crisis, the relevance of economic law and regulation, and the necessity and legitimacy of regulation. The book further connects the framework with economic and social development as well as the development of politics and law. Those interested in the application of specific economic laws and regulations in distribution may wish to refer to other works by the same author.

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Index

Page numbers in bold denote tables, in italic denote figures analysis: policy 10; structural 10, 71, 171; systematic 10, 78n12 Beck, Ulrich 1, 11n1 capital 3, 6, 40, 44, 50n47, 50n48, 57, 59–62, 75–76, 80n25, 87, 90–91, 98–99, 102n11, 103n19, 129n22, 145, 165n35 capitalism 11n2, 12n11 China’s: economy 16, 109, 164n18; reform 5, 71–72, 74, 77, 84, 102n4, 107–108, 113, 117, 119, 124–126, 153, 168 consumer 3, 21, 23, 60, 97, 129n20, 147, 151, 158; rights 68–69 debts: burden 26, 147; contingent 26; direct 26; explicit 26; government 26; implicit 26, 48n29 development: coordinated 2, 4–5, 23, 37, 42, 58, 65–66, 77, 101, 134, 150, 158–159, 161, 166n49, 168; economic 4–7, 11n2, 19, 22, 32, 41, 52n67, 56–58, 61–62, 64, 72, 84–85, 88, 92, 99–100, 102n5, 102n7, 115, 120, 138, 141, 145– 146, 154, 159–160, 164n20, 165n33; effective 6, 20; law 9, 12n17, 13n21, 85, 102n6, 130n31, 131, 152–157, 159–163, 166n48, 166n49, 168; national 3, 37; regional 65, 67, 69, 74; social 1, 3, 8–9, 12n17, 15, 17, 22, 24–25, 41, 55, 57, 59, 71–77, 84–85, 100–101, 102n6, 102n7, 126, 131, 134, 140, 152–153, 155–161, 166n53, 157, 172; sustainable 24, 138, 159, 161 Dezamy, Theodore 156 distribution: crisis 1–2, 4–5, 8–10, 25, 41, 131–132, 137, 140, 142, 145–147,

152–153, 155–160, 162, 167–170, 172; differences 8, 14, 37–46, 53n79, 103n21; imbalance 4, 9, 12n12, 63, 74, 83–84, 93, 95–96, 99, 102n2, 170; income 1, 4, 9, 21–23, 28, 37–39, 41, 44–45, 48n20, 59–64, 70, 76–77, 79n14, 79n15, 79n16, 79n24, 80n36, 81n36, 87, 92, 98–99, 103n15, 104n30, 119, 154; interest 6, 8, 18, 57, 108–109, 119, 121, 125; issues 1–5, 8–10, 11n8, 14, 18, 23, 38, 42, 46, 52n72, 54–55, 58, 60, 64, 71–72, 75, 78, 85, 92, 94– 95, 99, 105, 107–108, 110, 131, 160, 162, 167, 169–171; -orientation 105, 107; power 14, 83, 85, 88; pressure 5, 7, 9, 14–17, 20, 22, 47n8, 54, 71, 105, 153; problems 2–5, 7–10, 11n1, 12n13, 12n19, 15, 71–72, 74, 76–78, 78n9, 79n18, 81n42, 81n45, 83–85, 87–89, 91–93, 95, 99–101, 102n3, 104n35, 122, 131–132, 136, 152–153, 155–162, 167–171; relationships 54–60, 63–64, 71, 75, 78n4, 78n13, 82n51, 83, 86, 97, 106, 109, 116, 119, 122–123, 125, 158; revenue 58, 83–84, 86–89, 91, 93, 97, 99–101, 103n17, 104n29, 104n32, 107, 114; risks 2, 4–5, 7–8, 14, 16, 19, 25, 37–38, 41–43, 46, 54–55, 57–58, 60, 62–63, 72, 78, 83, 102n2, 131, 142, 146–147, 150, 152–153, 158–159, 162, 168; structures 1, 4, 6–10, 16, 20, 38, 42, 54, 58, 60–61, 63–71, 78, 80n36, 81n36, 83–101, 102n5, 102n12, 103n19, 104n25, 105, 168–169, 171; systems 2, 10, 14, 40–42, 51n59, 56–63, 68–70, 79n15, 79n24, 83–93, 96–97, 100–101, 102n10, 103n15,

Index 103n19, 127n4, 153–155, 158, 171; theory 3, 7, 56, 83, 93, 95–96, 100– 101, 103n25, 104n25, 155, 159, 162, 168, 170; unfair 4, 8–9, 12n18, 14, 20, 44–46, 53n77, 60, 63, 66, 84, 88–90, 92–93, 96, 99–100, 103n21, 104n37, 157, 161, 170 dual: adjustment 8–9, 64, 66–67, 69–71, 95; pressure 15–25, 46n1; regulation 54, 64 economic: law subjects 15, 20, 22; systems 24, 68, 76, 90, 106, 114, 117–118, 121, 123–126, 128n15, 136 effective adjustment 38, 58, 65, 71, 84, 92 European Union (EU) 1, 25, 36, 48n26, 143, 165n26 financial: pressure 7, 14, 16, 18–19, 22, 25–26, 46n6, 47n11, 48n23, 109, 119; regulation 3, 69, 133, 135–136, 141, 163n4, 163n8, 164n23 financial crisis 5–6, 14, 22, 25–33, 36–37, 48n23, 48n24, 48n29, 49n32, 70, 88, 109, 118, 131–140, 148, 150, 163n4, 163n7, 163n11, 164n17, 164n19, 164n21, 169; of 2008 1, 4, 11n3, 11n4, 25–26, 52n71, 57–58, 78n10, 79n14, 128, 131–132–133, 139–140, 143, 163n9, 164n23, 165n29; global 1, 25–26, 57–58, 78n10, 131, 133, 167 fiscal: crisis 1, 5–7, 25–36, 48n24, 48n27, 139, 169; expenditure 21, 23, 26–27, 31, 34–35, 45, 47n17, 62, 114–115, 141; power 21, 27, 32–34, 36, 119; pressure 8, 16–26, 48n23, 55; revenue 16, 18–23, 27–29, 31, 38, 41, 44, 46n5, 47n7, 47n8, 70, 86, 89, 96, 99, 107, 112–115, 112, 113, 119, 121, 126, 127n10, 128n10; risk 8, 22, 26–33, 35–37, 105, 139, 147–148, 150 German Anti-unfair Competition Law 3 Gini coefficient 1, 37–39, 39, 39, 41, 44, 52n65, 88, 103n13 Great Depression 3–6, 12n20, 53n78, 163n1, 164n23 Gross Domestic Product (GDP) 16, 18, 20, 25–26, 41, 46n5, 47n17, 96, 102n5, 112–115, 112, 113, 119, 127n10, 128n10, 138, 164n20, 166n53 Hayek, Friedrich 101n1, 160, 166n58 Hicks, John R. 18, 48n23, 109

187

imbalance: economic 1, 12n20, 15, 17, 46, 145–146, 149, 152, 168, 170; social 12n20, 15, 46, 149, 152, 159, 168; structure 65, 71, 83, 89, 93, 96, 99, 171; see also distribution Interstate Trade Law 3 Inverted U Hypothesis 28, 49n40; see also U curve jurisprudence 28, 85, 95, 118, 121, 123, 126, 130n30, 130n31, 131, 134, 144, 152–156, 160–162, 166n50, 171 Kuznets, Simon S. 28, 49n41, 80n26, 92, 103n24, 112, 127n9 Laffer, Arthur 47n20, 95; Curve 23, 47n20, 94 law: financial 19, 22–23, 45, 73, 75, 107, 118, 124, 133, 139, 147, 150; fiscal 19, 43–45, 56, 62, 70, 73, 75, 85, 90, 97, 99, 103n21, 132–133, 139, 147, 150, 166n58; tax 23, 31–33, 36, 42–44, 50n44, 50n51, 56, 62–63, 70, 73, 75, 81n50, 85, 96–99, 102n9, 103n22, 120, 123–124, 133, 139, 144, 147, 150 legal: adjustment 28, 71, 80n27, 83, 85–86, 89–91, 97, 123, 134; regulations 1–2, 4–8, 14–15, 25, 42, 64, 99, 143, 147, 153; systems 3, 7, 14–15, 18–19, 24, 36, 46, 59, 76, 83, 86, 89, 92, 95, 97, 101, 102n6, 110, 121, 123–125, 134–135, 137, 140, 147, 156, 163n5, 168 legislation: centralized 75, 77; current 30, 66; decentralized 75, 77; economic 3, 25, 115, 118, 122, 127n10, 129n23, 163n5; specific 27, 35, 73, 123, 144, 149 Lewis, W. A. 40, 80n26, 127n9 livelihood/living pressure 7, 14, 16–18, 20–25, 37, 55, 63 market: economy 6, 18–19, 26, 29, 41, 59–60, 76–77, 88, 90, 99, 109, 111–115, 117–118, 120–121, 123–125, 127n3, 127n10, 129n23, 130n29, 145, 157, 159, 163n5, 170; regulation 3, 21, 56, 74, 111, 115–118, 124–126, 128n11, 129n23, 133, 135–136, 139, 143, 145–146, 148, 157, 169 Morelly, Étienne-Gabriel 5, 12n14, 156 motivation 9, 15–16, 18, 24, 102n4, 106–109, 119, 125, 168 Musgrave, Richard A. 27, 115, 128n12

188

Index

national: coordination 54–60, 63, 78n3, 168; debt 3, 26, 66, 122, 143, 147, 150, 158; economy 6, 14–17, 22, 25, 57, 67, 76, 84, 129n23, 148, 158 National Development and Reform Commission 30, 79n15, 79n21, 79n24 National People’s Congress (NPC) 34, 47n7, 50n47, 79n19, 80n33, 122, 124, 127n6, 129n23, 129n24, 130n27, 165n31, 165n34 New Deal 5 North, Douglass C. 18, 32, 48n23, 50n52, 80n35, 109, 119, 128n19 “opening” 8–9, 19–20, 26, 37, 42, 48n22, 59, 71–72, 75, 81n50, 82n50, 84, 90, 106–111, 113–114, 116–120, 122–126, 130n27, 153, 168 Opinions on Deepening the Reform of the Income Distribution System 59–62, 79n15 positive encouragement 46, 66, 71–72, 136 promoting norms 8, 71–78 prosperity 15, 32, 36, 41, 60, 75, 84, 88, 161 public economy 6, 9, 16–17, 22, 24, 27, 29, 33, 37, 49n33, 89, 92, 140, 142–144, 146, 148 risk society 1, 151 Roosevelt, Franklin D. 5

rule of law 2–3, 5–9, 15, 19, 24, 26–27, 33, 35–37, 56, 64, 67, 70–71, 78, 83, 85, 101, 105–107, 117, 131, 134, 137, 145, 152, 162, 166n46, 167–171 Schumpeter, Joseph Alois 18, 48n23, 109 structural optimization 59, 62, 84, 93, 96, 100 system theory 55, 58, 63, 93, 95, 100, 139 tax burden 41, 44, 52n70, 52n75, 62, 95–97, 104n28, 104n34, 119–120, 122, 147, 150 taxpayers 21, 29, 31, 35, 63, 104n28, 104n32, 139, 141, 150–151 treasury bonds 26, 29–34, 49n33, 49n43, 50n46 U curve 86, 110–117, 119, 126; inverted 28–29, 86, 92, 103n24, 127n9 United States (US) 1, 11n4, 25, 36, 40, 52n71, 53n78, 102n5, 104n27, 127n3, 135, 137, 143, 163n6, 165n30; Congress 48n25, 104n27, 164n23, 165n26 US Sherman Antitrust Law 3 Wagner’s Law 35, 51n58, 113, 115, 128n12 wealth 1, 4–6, 11n1, 11n5, 11n9, 27, 37–38, 41–44, 51n61, 51n62, 52n71, 56, 74, 84–85, 87, 92, 94–95, 102n10, 102n12, 103n12, 111, 123, 157–158 workers 21, 42–43, 61–62, 88