| Many industries have been regulated strictly for much long time, but as market economy in China develops and industries grow, it has cause great debate whether the original regulation system should be reformed. Especially affected by the tide of loosening regulation in western developed countries from 60s and 70s in 20th century, the voice of the same policy is getting stronger in China. This paper figures out the relationship between government regulation and industrial growth, and the rules that reformation of government regulation should follow, by providing foreign and domestic examples in civil aviation industry. The main body of this paper falls into 5 parts. Part I economic and technological features of civil aviation industry and government regulation Civil aviation industry has always been among those government has to regulate most. Although intensity of this regulation varies, it never stops. The reason is its inherent features, including economics of scale and scope; high investment, long time of recovering fixed cost and relatively low profits; strong barriers and enormous sunk costs; monopolistic; identical products and fairly low marginal costs; and obvious positive externality. Because of those features above, we have concluded that government regulates civil aviation industry in order to reduce monopoly, avoid destructive competition and make use of positive externality. Part II history and current conditions of civil aviation industry in developed countries and evolution of their regulation policies U.S.A. has not only its civil aviation industry of the greatest scale in the world, but a complete system of regulation. Furthermore, the reformation of regulation of U.S.A. is the earliest, the most thorough and the most representative. Thus we systematically analyze the reasons and effects of evolution of regulation policies applied by U.S. government, and conclude that reformation of government regulation should be based on much study and theoretical discussion, and must be accorded with industry growth; reformation should be conducted gradually under fair legal conditions in order to keep steady growth; certain regulation policies must be kept and strengthened, such as social regulation of security and environment protection; and anti-monopolistic should be adopted so that workable competition could be maintained. Part III history and current conditions of civil aviation industry in China and results of Chinese regulation policies Evolution of market structure of Chinese civil aviation industry can be creatively separated into three stages: the stage of administrative monopoly, the stage of monopolistic competition and the stage of transformation into oligopoly. Two conclusions can be drawn from the systematic analysis of evolution of government regulation. First, non-separation between government and the state-owned enterprises does not change the goal of maximization of profits. All methods taken in competition are optimal under given regulation policies. Thus profits less than costs are caused mainly by regulation policies. Second, battles in prices are caused by over-competition. In essence, competition is helpful to promote efficiency in production and distribution, which can lead to more efficient allocation of scarce resources. The reason for profits less than costs may be caused by lack of competitive environments and corresponding mechanisms of quitting that should be provided by CAAC. Part IV growth of Chinese civil aviation industry and reformation of government regulation Problems in civil aviation industry can be summarized as follows: non-separation between government and the state-owned enterprises and lack of market principals; small scale and inability to compete internationally; extensive management leading to high costs; incorrect structure of capacity of transportation and airlines; rigescent pricing and lack of revenue management. Problem also occurs in our government regulation: unbending regulation due to incomplete construction of legal sy...
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