Business Needs Regulatory Certainty

By EO Editorial Board
Published: 2009-11-08

Cover Editorial - EO print edition no. 443
Translated by Pang Lei
Original article:

There's no way of knowing how the current dispute surrounding the online game "World of Warcraft" will be resolved.

This could be a good opportunity for the General Administration of Press and Publication (GAPP) and the Ministry of Culture, to draw up a new agreement that outlines the relative responsibilities of each government authority.

In many cases, blurred boundaries can be beneficial, but in terms of doing business, any kind of uncertainty carries a significant risk.

This is especially true when a company is dealing with a regulatory body.

The question of whether Netease has operated "World of Warcraft," in an illegal manner, can only be determined by the regulators.

But if companies are to act lawfully, first they need to understand who the relevant regulatory authority is and they also need to clearly understand every single detail of the regulations that they are required to operate within. If the identity of the relevant authority is unclear, or if the regulator does not provide a clear definition of the regulatory guidelines, then enterprises may face difficulty and confusion in dealing with the regulator.

Of course, in cases like this, it's also true that enterprises can use various methods to take advantage of the ambiguous nature of the regulatory regime in order to both safeguard and maximize their commercial interests.

But in fact, it's very difficult to act like a good law-abiding citizen in cases like this - it's more than likely that  you won't be sure if the implementation of a vague regulatory policy will veer left or right, similarly, if you actually do encounter a problem, you don't know whose interpretation of the law will have the most clout.

The battle over World of Warcraft is only the latest example of the kind of regulatory confusion that regularly occurs in China.

We prefer to assume that all regulatory bodies are responsible agents, and that their sense of responsibility motivates them to carry out their regulatory work to the best of their ability.

However, in situations when regulatory authority is blurred or contradictory, who should act as the final arbiter?

Objectively speaking, in a world of increasing economic integration, the duplication of regulations or the existence of overlapping regulatory authority is often impossible to avoid. 

For example, when China's financial industry first began to emerge, regulators that monitored China's banking, securities and insurance sectors faced a lot of difficulties and for a time problems related to an overlapping of regulations existed. 

In this environment, borders that have been drawn up by people are more likely to result in disputes of regulatory vacuums.

We think that in order to resolve this problem, we should first be clear about the source of the problem.

Regulators should first be clear that clear regulatory boundaries in themselves do not mean that their own interests will be diminished.

As regulators, the first thing that they should consider, regardless of whether discussing the limits of authority or regulatory cooperation, is what kind of model is best at creating a more stable operating environment for businesses and providing better protection for the interests of consumers.

The ultimate aim of any regulation is simply to avoid a non-legitimate businesses from hurting the interests of consumers or harm the interest of other industry players for their own profit.

If we take this as our starting point, even in a situation where regulatory authority is unclear and different bodies are offer conflicting interpretations of the rules, ultimately we'll be able to approach the problem in a more rational and cautious manner.

The principle is the same when we look at the problems of approving Netease's hosting of World of Warcraft.

We do not know whether the State Commission Office for Public Sector Reform once again needs to issue documents that further clarify the relevant powers of each of the regulatory bodies, we're also unsure whether any of the relevant departments have already moved forward with discussions on the matter.

We believe that the regulators are wise enough to resolve the confusion and perhaps through such twists and turns, companies competing in the multi-billion yuan Internet gaming market will no longer be troubled by uncertain regulatory authority and vague rules.

After all, the world of business is already an uncertain place, one of the missions for regulation is to provide established and stable market rules and standards of enforcement, to a business that is fighting for survival in an uncertain world, this certainty is worth more than its weight in gold.