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Does China need financial derivatives' regulation: Catch 22 or a vicious circle?
Since accession to the WTO, the liberalization of the Chinese planned economy to a market economy has evolved piecemeal. The risk management objective for the transition has been proceduralized in the form of regulation. The objective serves to benefit the infrastructure of the market economy. However, the objective of permitting financial institutions to engage in derivatives transactions as a means to manage risk may turn out to achieve the opposite. In practical terms, it is important to understand more clearly and precisely the manner in which the law regulates credit risk involving financial institutions, which may shape their lending attitude. In theoretical terms, such understanding paves the way for a consideration of the interrelationship between financial institutions and the capital market modernising the risk property from intangible to a potential tangible form. This article seeks to untangle these issues and consider the function that derivative regulation performs in the market economy infrastructure.