Abstract: While China is making the transition from a planned economy towards a market economy, as State-Owned Enterprises (SOEs) dominate in many industries, should the government regulator protect consumers’ either interest or SOEs’ profitability, or both equally? According to fundamental economic principles, this paper concludes that the government must protect consumers’ interest, optimize the superior and bankrupt incompetent SOEs through competition. Only by doing so, can the government’s goal of increasing productivity and social welfare be realized.

Key words: governmentpositioning, governmentregulation, state-ownedenterprise, socialwelfare, economicAnalysis