Sentence Correction

During the past decade, the labor market in France has not been operating according to free market principles, but instead stifling functioning through its various government regulations restricting the hiring and firing of workers.

A: principles, but instead stifling functioning through its various government regulations restricting the hiring and firing of workers
B: principles, instead it has been functioning in a stifled manner as a result of various government regulations that restrict the hiring and firing of workers
C: principles, rather functioning despite being stifled as a result of government regulations that variously restrict worker hiring and firing
D: principles; the hiring and firing of workers is restricted there by various government regulations, its functioning being stifled
E: principles; instead, its functioning has been stifled by various government regulations restricting the hiring and firing of workers


OA is E.

Can anyone please tell me the difference between that+ .. and -ing+ construction to modify any noun ?

Narrowing the choices to B and E, I chose B for parallelism. Can someone explain why B is wrong?

[spoiler]Also, is it grammatically correct to say, During the past decade, ... its functioning has been stifled?[/spoiler]

Nevermind, got it. Instead can't connect two independent clasuses. Thanks for posting the question.