Social Sciences in China (Chinese Edition)

No.10, 2013

 

On the Incentive Legal Regulation of Private Loans

(Abstract)

 

Yue Caishen

 

The choice of theoretical paradigms and optimal system design lie at the heart of an innovated legal system of private loans, and are essential to the legal governance of private loans. For a long time in the past, Chinese law has relied heavily on a mandatory and control-oriented mode of legal governance (such as banning, restricting and combating) to regulate private loans. In market economy, however, these traditional ways of legal regulation have proved rather ineffective in guiding the optimal allocation of private capital and in preventing the occurrence of potential risks in relation to private loans, thus reducing the effects of private loan governance. In terms of the general legal structure, we must recognize the practical development of private loans in China, take into full consideration the dual nature of information constraint, transform the traditional thinking on the legal governance of private loans, and introduce a theoretical paradigm of incentive-regulations, so as to establish a scientific and incentive legal structure characterized by a multi-party game-playing mechanism under the circumstance of asymmetric information, a range of incentive regulation tools including choice of market access, regional competition, tax reduction, price ceiling and identity shift of subjects, an optimal legal system design, as well as a diverse and differentiated set of regulation mechanisms.